What Buddhists can teach us about payroll tax

17 minute read

An obscure legal case over a tax exemption for running a school could provide insight into the problem.

Another Saturday, another payroll tax column.  


When the Queensland Revenue Office came out with 44 new items a few weeks back to make its original payroll tax ruling as detailed and unequivocal as you could probably get on the matter, I had (mistakenly) thought that it was a line in the sand that would easily be recognised as a turning point in this saga. 

This week we ran a webinar which featured about 124 slides, each with a lot of information, which went over the ruling in a lot of detail and suggested that anyone wanting to be compliant now had a pretty good piece of documentation – the QRO ruling and a video and summary slide set on how to be compliant. 

Here is that webinar and the slide deck

I actually thought, with some relief, that should be about it for the payroll tax columns (I did panic a bit as I wondered what on earth else I could write about now).  

The updated ruling made it pretty obvious that state revenue offices weren’t ever going to somehow exempt GPs from payroll tax law – why would you go to that trouble and detail if you were ever contemplating something like that – and at the same time it outlined for everyone in very black and white terms what constitutes compliance and what doesn’t. 

But even before that webinar ended I was sent a press release about how the Victorian branch of the RACGP along with the Primary Care Business Council (which is essentially a lobby organisation for the top six or so GP corporates) and the Australian GP Alliance (a practice owners group) was resuming a new round of lobbying with that state government based on their being a new premier who might be a little more receptive to their arguments than Dan Andrews was on dropping payroll tax for GPs. 

It was as though the revised QRO ruling, the original version of which most states followed suit on, hadn’t happened. 

Having these three organisations lobby together – these are three strange bedfellows – 

is a dynamic that bears a little thinking through. Why is the RACGP joining forces with the corporates (which it has railed against in the past), and why are the corporates now putting their head above the parapet (they’ve been suspiciously quite so far on the whole topic)? 

That the RACGP is still pursuing governments to change a law that every state revenue office (barring WA) keeps doubling down on and have never shown any indication whatsoever of changing bears a little thinking on as well. 

What might be going on? 

The revised QRO ruling comprehensively describes what ducks you need to have in row for it to view your business as a service entity with tenant doctors largely not attracting payroll tax, versus a medical practice controlling its doctors and attracting payroll tax. 

There’s quite a lot of ducks to get lined up, though. 

As far as the corporates go, their scale, their history with the courts already (especially Primary Healthcare, which is now ForHealth) and their well described business models (at least well described in the past), which involved a lot of control of their doctors and systematisation in order to optimise profits, make it hard to imagine how they could possibly escape some major business disruption. 

Even if some of them manage to remodel their businesses to meet the exacting standards now outlined in the QRO ruling (which will almost certainly be used by the other states), they will have nowhere to go in terms of how they operated in the past. 

Some have been operating models which aren’t compliant with many hundreds of doctors for more than 10 years. That’s going to add up. 

But what if through effective lobbying, the corporates manage to get each state to offer an amnesty which includes no back auditing? 

That would be manna from heaven for these businesses. It would amount to a massive free kick and a change in business valuation across the whole sector which would easily be well into the billions in new value for the sector. 

Of course, if they opted for an amnesty they would need to flip to paying payroll tax going forward. 

But skipping out of the massive penalties they’d face going backwards should make that change very worthwhile. 

No giant liability for being non-compliant for 10 years or more and just up your fees going forward to cover the additional costs you’d be up for in payroll tax – a pretty good outcome given the circumstances. 

It would actually amount to a win-win for the big corporates and the various state SROs which might end up pushing about 25% of all general practice into paying payroll tax. 

It may not all be plain sailing, however. 

By switching to payroll tax in these businesses the ATO might not be happy with the tax returns of all the doctors contracted to these companies for many years who would have been putting in returns as small businesses or sole traders. 

That could end up as messy as where we are now on payroll tax.  

If the contract doctors started getting hit by the ATO it wouldn’t be long until they drew the companies who put them on contracts which led them into conflict with the ATO into court in some sort of class action. 

Some commentators have said that switching to payroll tax would not trigger income tax issues for contractor doctors in these organisations, but that is entirely untested. If you look at several federal cases involving the ATO and “deemed employees” it’s very easy to map a path to there being a potentially big problem here in the future. 

Still, you’d imagine if they could secure amnesties that included no back auditing in most of the states, the short-term valuation of these big corporates would skyrocket back up. 

This might explain why the Primary Care Business Council is going in hard with the college and the AGPA in Victoria. 

Each group has a very different agenda in wanting to lobby for change. 

They can each lay claim to it being all about practice survival and the stability of the healthcare system (to some degree it is) but as far as the corporates are concerned it’s about business value going forward. Some are parts of big publicly listed companies, others are owned by private equity which want a path to exit. Value is king. 

Survival as businesses and value must be on the mind of the AGPA as well, but these are smaller businesses with a lot more ability to be agile and become compliant if they aren’t already.  

AGPA members are in a much better position than the PCBC members. Most would love the law to change, but if it doesn’t many probably wouldn’t take the risk of an amnesty and moving to payroll tax.  

Many were set up with the intent of being service entities and would likely be able to remodel themselves to be compliant as service entities going forward.  

But you get the feeling that many are simply frozen with fear of the unknown at the moment.  

Are they able to remodel themselves and, even if they do, would they get back audited? That’s probably why the AGPA is still in there fighting the good fight alongside some awkward partners. 

The key word which we will come back to  here is “intent”.  

“Intent”, it turns out, might be a pretty big reason why some practices will be able to remodel and not get stung by the SROs. 

But what about the RACGP?  

It doesn’t own businesses and it won’t end up profiting from anything here.  

It’s just doing the right thing in defending its members, right? 

Yes and no. 

Yes, the college has come out swinging all the way through this saga, in defence of the realm. 

But it’s done that mostly with the simplistic stance that we should just ignore the law for GPs because it will kill too many GP businesses. 

When this stance clearly wasn’t cutting through it defaulted to laying claim to victory for its members in having forced the state revenue offices to offer amnesties. 

In some respects the college could easily be seen to be misleading their members with these claims to victory. 

The amnesties are very controversial and some commentators are warning practices to read the fine print before joining up. 

In some states you can join up, show your books, be liable for payroll tax, and not qualify for the amnesty. 

In Queensland and South Australia, the amnesties are not gazetted by either parliament, which some legal experts think may lead to the amnesties not actually being legally enforceable. 

The other thing about amnesties: you’re saying upfront you think you aren’t compliant, in which case you are essentially making a deal with the SRO to move to payroll tax in the future if they don’t back audit you. 

That is a pretty bad deal, especially if you consider all the untested issues that might ensue around the individual income tax returns of contract doctors and the ATO if a practice goes this way. 

So, to put it bluntly, the amnesties pretty much suck, RACGP. 

That seems to be borne out by the extremely low numbers of practices in Queensland that have actually opted for an amnesty.  

The numbers must be very disappointing for the QRO and the Queensland government. 

One Queensland minister was banking all that extra revenue in payroll tax for the state already in a statement to parliament, but if only 100 practices roll over, this minister’s dreams are probably not going to be realised. 

In NSW it’s not an amnesty, it’s a “pause”.  

Ironically NSW gazetted the pause.  

This probably is a good win for college on behalf of their members because it means they don’t have to out themselves to anyone and they have a full year to think about the problem and get their act together on compliance (and “intent”) if they want to. 

So out of all the states so far, the college has really only got a win in NSW, and then only for one year. 

The college also claimed a victory in Queensland based on the payment flow ruling which essentially said that while a practice might be liable for payroll tax based on how it operated as a business, if the money for a consult flowed directly from the patient to the “tenant” doctors first, then that money could not be levied for a payroll tax calculation. 

That isn’t a win. 

For one thing it’s only a possibility so far of happening in Queensland. Already in Victoria practices have been hit for reasons other than payment flows. For another, any practice that thinks it would be fine not fixing all those other payroll tax compliance issues in their business outside of payment flows would be taking a huge ongoing business risk and that risk would almost certainly impact sale value. Finally, fixing payment flows the way the QRO is saying it would like is very complex and expensive. 

Some commentators (including this one) have pointed out that if the college and the AMA had not come out all guns blazing in each state and irresponsibly stated publicly (without actually knowing for sure) that most of their members were payroll tax-liable, then likely there would not be so much enthusiasm and focus from the various SROs. 

Most states need more taxpayer income and in some respects the AMA and the college painted giant targets on the back of their entire membership. 

Are you thinking yet, hey, what about the Buddhists – after all you made it your headline? 

There’s a point to leaving the Buddhists to the end. 

A very big problem is that while it’s now pretty clear what you need to look like going forward, a lot of owners are wholly unclear where they stand going backwards. 

History is now a big problem for everyone and I think it might be why I’m still writing a payroll tax column even though everyone should be clear that SROs aren’t going to change the law and the law should now be very clear for everyone. 

Here’s a way oversimplified account of the Buddhist school, which has led to something called in the legal fraternity “the Buddha rule”. 

Long ago (2021) in a faraway land (Western Australia) a group of Buddhist monks decided to apply for charity status and through that a tax exemption based on them being a school. 

After some time the ATO sent the Buddhists a note saying they didn’t think they were a school because they’d had a quick look around and didn’t see any school desks, anything that looked like classroom, any regular lessons going on, no student enrolment forms, schoolbags and so on. The ATO thought if the Buddhists had none of the usual behaviours associated with being a duck, they probably weren’t a duck, so they denied them their tax exemption. 

The Buddhists took the ATO to court. 

The judge in the case agreed with them.  

He said that although there were no desks, or course outlines, or books and pens, clearly the Buddhists were in the business of teaching the people who came to their temple about spirituality and leading better lives. That the students were occasionally dressed weirdly and were kneeling on a concrete floor in a big open space listening to what the Buddhists had to say, rather than sitting at desks doing sums or essays and taking notes with pens, didn’t amount to an argument that it wasn’t a school. 

What the judge said, and what later became a basis for many similar federal court cases, was that the most important thing to consider was the “intent” of the Buddhists when forming their business. 

In this case it was to teach about spirituality and related life topics. 

That they didn’t have the same setup as most schools, or the paperwork to prove beyond doubt they were operating as a school, became secondary to the actual intent, said the judge. 

The Buddhists got their tax exemption back. 

How should this make a practice owner feel any better about their current dilemma on payroll tax? 

Well, if you’re a corporate it probably wouldn’t make you feel any better. 

There is so much scale and systematisation in the recent past of some of these businesses as to make intent reasonably clear: their business model directed how their contract doctors worked in a lot of detail in order to optimise systems and profit.  

It’s going to be hard going backwards for some of these businesses to argue intent. Applying the detailed QRO ruling, they have, in the past at least, been very obviously operating as medical centres, directing their contract doctors how to work and when (like employees) and holding their centre as offering medical services to the public, rather than offering administratives services to the individual doctors who were offering the medical services to the public.  

Smaller practices, like many AGPA members, for instance, might have a much better chance at arguing intent. 

A big problem in this whole payroll tax saga has been how the colleges and many owners have somehow accepted that what the SROs say is law and that their rulings somehow are beyond reproach. 

What everyone doesn’t see behind the scenes is how many practices get an audit, get a decision against them from an SRO, fight it and win. And sometimes they are winning easily. 

The reason they are winning is that the SROs quickly realise in some of these cases that if they don’t give in but decide to go to court, and end up losing, they will end up with a lot of precedents that go the opposite way of Optical Superstore and Thomas and Naaz: a series of court wins for practice owners. 

Even if some of the smaller to mid-sized practices have been doing the wrong thing in some respects going backwards, it’s feasible that the Buddha rule defence could help them get over the line.  

As a part of an intent defence you can argue that your intent was always to operate as a services entity for purposes of malpractice protection, talent acquisition and retention, and you were very badly advised. 

It’s apparent now that a lot of practices were badly advised.  

Jamie Packer used the bad advice defence to stay out of jail in the OneTel case, which is a nice big public precedent. 

There might be a whole new stage in this saga where practices start challenging audits enough for the SROs to settle down and stop being so enthusiastic about a potential new big revenue stream. 

Another important strategy, but one no one likes to talk about, is the option of ending your current business with all its baggage and starting another one that is perfectly compliant. 

This can be a bad look, and it’s not a guarantee of protection (get advice, everyone), but trying to audit and prosecute a company that doesn’t trade any more is significantly harder for an SRO than dealing with an operating entity. And if you have no liability levied against your business when you do this, you are perfectly entitled to do it. 

It’s one possible strategy. Not one I’d love to be pursuing, for sure. But it’s there. 

The thing is, there are options. It’s not a lost cause like the college and others keep projecting. 

They are projecting that, by the way, to make their argument for getting the law changed. 

If practices have no way out, the government must respond. 

But the government isn’t stupid. It knows it’s not actually Armageddon. 

The college isn’t doing anyone any favours by ignoring the other options its members have to solve this problem. 

In most cases these options look a lot better than dobbing yourself in to an amnesty and risking turning your business model upside down by moving to paying payroll tax going forward (including exposing your doctors to potential ATO action). 

As always, think of me like Dr Karen Price likes to from time to time: professional weekend brain farter. I have no qualifications. Talk to someone who knows.  

But equally don’t just believe everything you’re hearing from the AMA, the RACGP and the like. 

Lots of practices are in a very tough middle ground on this issue. Many have the difficult task of choosing a least worst option.  

Get the right and detailed advice on what is actually going on. 

Until you do, here’s that webinar and slide deck again.  

Next week: A brothel owner, a Buddhist and GP practice owner walk into a bar. 

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