SA, Victorian payroll tax offers are coercion by another name

12 minute read

The new deals are more about politics of bulk billing than helping GPs. Welcome to the world of state-by-state bespoke tax.

Based on this week’s announcements on intended changes to payroll tax in Victoria, office space that suits a medical centre in the border town of Wodonga is going to get scarce and expensive very quickly.  

Much worse, within a couple of years there may not be a single practising GP in its twin city, such is the pricing signal that would be sent to GP practice owners in Albury to move over the border to Wodonga, if Victoria legislates to alter its payroll tax law later in the year just for the GP profession. 

Welcome to the world of politician-designed, state-by-state payroll tax. 

It’s going to get weird by the look of things. 

In both the SA and Victorian announcements this week there is good news for any GP practice that was thinking of giving in and moving to payroll tax.  

If you choose to take the new offer in Victoria and the government keeps to its word, you no longer have to worry about a backdated five-year audit, and you can breathe in for a year while the government organises its bespoke changes to their tax laws.  

Then in a year, you won’t have to pay payroll tax on any earnings that are bulk billed. 

The best thing about the Victorian position is the offer of breathing space. There are a lot of moving parts here and a year might reveal a lot more of the problem with the politics of what is going on. 

In SA you aren’t so lucky on the breathing space, so you’ll have to make some big decisions sooner rather than later. But if you do choose to go over to paying the tax, and again, if the government does what it says it is going to do in legislation, then a lot of practices should be able to either skip the tax altogether by reducing their liability below that’s state’s relatively high threshold ($1.5 million compared to Victoria’s $700,000) or significantly reduce their liability. 

According to RACGP SA chair Sian Goodson, the maths is looking good for GPs in her state. She says that given the 74% rate of bulk billing in SA – is that really the rate, though – that would mean a 74% reduction in payroll tax assessable income and that will either mean a practice doesn’t pass the $1.5 million threshold and therefore pays nothing, or they won’t pay much.  

If you’re a very big practice, “won’t pay much” will obviously become a relative term. Big practices are still going to pay a lot in payroll tax depending on their mixed-billing profile. 

On spec, if you had decided not to remediate your structure and not go the way of establishing a defendable services entity structure (which many practices likely can do based on the comprehensive Queensland payroll tax ruling), the SA changes look pretty attractive. This is particularly so, given that SA is still planning on a deadline of 1 July to start targeting any practice for audit that doesn’t take up their offer – that’s the threat anyway. 

But if you step back from both the Victorian and the SA decisions this week and look and think a little harder about what is going on, it’s mostly politics.  

The politics of bulk billing. 

The way they are pitching things, they want us to believe they are being GP-friendly. But both of these state governments are playing a game with general practice that suits them politically and financially.  

Politically, they want to hold onto as much bulk billing as they can regardless of the consequences for general practice finances over time, and financially, they still want to collect new tax revenue – that being from mixed-billing consults now. 

If these governments did support a healthy general practice sector they would not have been making threats for the past couple of years to back-audit practices for a tax they only recently discovered they might be able to levy.   

Remember, most state governments are not making coin yet on GP payroll tax. Whatever they get from here is upside for them. It’s much easier for a government to forego revenue they don’t even have and its made easier if there is political win in what they do. If they can still lock in revenue via levying mixed billing, put some blocks in place to the continuing downward drift of bulk billing, and look good to the electorate, it’s all a win for them. 

But where exactly is the win here for general practice? 

Oh, that’s right, the win is state governments won’t ruin you anymore with back audits and will even reduce your forecast new payroll taxable revenue going forward. So be grateful for their generosity here and try not to feel cynical about all that rhetoric they throw at you about “having the back” of general practice.  

These state governments are most interested here in ameliorating the political blowback they will face if bulk billing keeps sliding.  

So is the federal government, which is why Mark Butler endorsed the states’ moves this week. 

The optics here are easily skewed by the politicians.

These state governments are not white knights riding in to save general practice.   

These changes are essentially financial blackmail with a view to forcing general practice to somehow hold up the bulk-billing model and pay state governments some more tax going forward.  GPs aren’t getting any more money to make up for 10 years of not being paid. They are just getting a promise that state governments won’t take as much money away from them as they were planning (threatening really) to and won’t destroy practices straight up with a back audit. 

There are a few telltale signs to the behind-the-scenes bullying and thuggery here. 

This week we were told by GPRA deputy chair Dr Mukesh Haikerwal and RACGP Victoria chair Dr Anita Munoz, that the state revenue office had told them that it was not aware of a single GP contract in Victoria that would not be eligible for payroll tax.   

“Our state revenue office has given a very clear signal that it deems all general practices in the state, irrespective of any conceivable structure, to be liable for payroll tax on the income generated by contracted doctors,” Dr Munoz told The Medical Republic

If the Victorian SRO did say these things to these senior GP leaders, they were lying to their faces with intent to deceive. The only reason for doing it is to continue a pretty well calculated scare campaign against all GPs in Victoria. 

Is that a government that is really thinking about the plight of general practice? 

It is a fact that practices have survived Victorian SRO audits in the last couple of years. In each case the Victorian SRO gave up because they assessed that these practices might win in court based on their set-ups.  

In other words, the Victorian SRO knows that GP contracts exist in Victoria that are NOT eligible for payroll tax because at least some practices have well set-up service entity structures that survived an audit.

Things are worse or better in SA depending on which way you want to look at it.  

Apparently having not managed to collect enough practices into their amnesty net, the government is now dangling the new carrot of no tax on bulk billing (a pretty juicy one for now given the high payroll tax threshold in that state), but only if you sign up per the amnesty and lift the lid on your business – something that provides them a point-to-point means of immediately understanding whether you would survive an audit or not. 

What Victoria and SA are doing now is attempting to lock up as many practices as they can for payroll tax on all mixed billing going forward, and force a lot of practices to reconsider their practice balance on bulk billing, something that in time will almost certainly start creating another financial stress point for practices (bulk billing has not been indexed to CPI for over 10 years now). 

Victoria and SA are having their cake and eating it: they get to say they are the good guys stepping up to save GPs from payroll tax, they are forcing a lot of practices into giving serious consideration to rolling over and taking their offer, which in the end will force low income in their businesses and condemn them to more financial uncertainty going forward.  

It will also expose them to other potentially huge liabilities in the form of new federal tax treatment of “deemed employees” and medical indemnity issues.   

State governments are not giving, but taking away. They are taking away less in these announcements in financial terms than they were planning, but they are taking nevertheless, at a time when general practice can’t afford it. 

If all governments, state and federal, were serious about the idea of bulk billing, they wouldn’t come up with ways to coerce GPs to keep doing it, they would just pay for it.

One politician in SA had the gall this week to say his government was giving GPs a big tax cut. That’s a typically political way to look at what has happened. General practice sleep-walked their service structures into being non-compliant, state governments found out about it, and as a result had a tax threat they could try on to manipulate the profession into coughing up some money and slowing the decline in bulk billing.

No state governments have collected any meaningful tax revenue yet as a result of these circumstances, so to say you are giving someone a tax cut is fanciful.  

State governments aren’t just being politically expedient here, they are being conniving. A lot of practices will feel that under the circumstances the offers put on the table this week are the best of what was shaping up as a terrible set of circumstances. A lot of practice owners will feel they have nowhere to go given how much they stood to lose prior to these offers. 

To be clear though, the offer, though better than what was on the table, is a swindle.  

If you consider that you may well be able to remediate your structure and survive any audit (many already have) the offer should be meaningless. But most practices aren’t up to speed yet on this option.  Some practices don’t know if they will survive an audit or not and SROs are playing on that fear and uncertainty.   

One interesting aspect of these state offers and the coercive nature of them will be if they survive anyone challenging them legally on the grounds that it is clearly government attempting to force price fixing on to a private enterprise.  

Parts of our Constitution strongly suggests that governments should not be doing this. If they do, the implications for the whole private sector would be quite dire. Can the government force pricing on airfares? Why not rent? And so on. 

In Victoria you at least have a year to think about all of this and get some advice. SA is giving you no time unfortunately. 

When you start thinking harder on these offers, and hopefully when you get some outside advice, consider the following: 

  • How much is it to remediate versus taking the offer and joining the payroll tax club? Do the maths. 
  • If you can don’t send your local SRO your books before you work this out. If you aren’t in shape, they will be able to threaten you with a back audit, even if you do remediate. 
  • When you do the maths think about what the coercive pricing signal to do more bulk billing might do to your business over time. If bulk billing follows history it’s not going to keep up with CPI in any way in the next 10 years. That would mean that you will need to keep upping your gap fees to account for your increasing costs to do business. How is that going to pan out? Oh, and if you do, then that’s more payroll tax too, right? 
  • If you adopt payroll tax you are very probably putting your contractor doctors in the solid crosshairs of the federal government as potentially “deemed employees”. The federal government came down with a pretty scaring ruling late last year you should check with your advisor on “deemed employees”. If your contractor doctors end up as “deemed employees” payroll tax is going to look like a walk in the park. 
  • The same goes for exposure of your business to medical indemnity issues. If you adopt payroll tax and leave your structure loose as a result you might end up having someone sue your practice rather than your contractors because a court will regard your contractors more as employees than contractors. 

If you are thinking this is all a little chicken little, it isn’t meant to be. 

I’m not a lawyer or an accountant, but I am reading the background a lot. 

All I’m saying is now that you have a much more enticing offer to give in and adopt payroll tax, make sure you get good advice on all the potential aspects of that decision before you jump. 

What’s better?  

A structure in which you can choose your own pricing and retain much more direct control of your financial settings, and one which won’t ever expose you to a federal tax problem for your contractors, or medical indemnity issues. Or, to take the new offer on the table here from SA and Victoria? 

I would not want to be trying to choose. But I’d certainly get some good external advice from a couple of parties before I did. 

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