Payroll tax risk remains in the spotlight for medical and private healthcare providers following a series of recent cases.
A common misconception is that payroll taxes are just a tax on salaries and wages paid to employees. In fact, it is also charged on payments made ‘for or in connection with the performance of work’ under so-called ‘relevant contracts’ in all jurisdictions except Western Australia. Tax rates vary from state to state, but the standard rate is currently 5.45% in New South Wales and 4.85% in Victoria.
The operation of this deeming provision is demonstrated in the results of the Thomas and Naz1 and Optical supermarket2 cases, explained below. These remain the main payroll tax cases related to the joint use of contracting and service arrangements with physicians and healthcare professionals in the private healthcare sector. They also highlight potential areas of audit activity by state and territory revenue offices, particularly for providers in Victoria and New South Wales.
It is essential that private medical and healthcare providers understand how these rules might apply to contractual and commercial arrangements with medical and healthcare practitioners who operate from their clinics, and take appropriate steps to deal with any risks.
The Optical supermarket case relating to payments made by Optical Superstore optometry clinic to optometrists who provided optometry services to patients on their own account (and not as employees) of the clinic. Patient fees were collected by the “owner” clinic “in trust” for the “tenant” optometrist. They were then paid into the optometrist’s designated bank account, after deducting a service charge retained by the clinic.
Payments collected by the clinic on behalf of the optometrist (including from private health funds, health insurance and patients) were subject to payroll tax when paid to the optometrist because that they were considered paid “for or in connection with the performance of work” under a “relevant contract” within the meaning of Victorian law.
While this case was thought to have a particular set of facts that would limit its application, the subsequent decision in Thomas and Naz tells us otherwise.
Thomas and Naz
In Thomas and Naz, the medical center operator entered into agreements with physicians who provided medical services to patients at its centers. Patients were billed wholesale for the doctor’s services. The operator of the center was authorized to claim, collect and reconcile the benefits due to doctors for the services they rendered to patients. The center would then pay 70% of the funds claimed to the bank account designated by the physician and would retain 30% of the funds claimed as fees for administrative services rendered by the center.
The NSW court ruled in favor of the judgment in Optical Superstore and held that the service contracts between the medical center and the doctors were relevant contracts within the meaning of New South Wales law. Payments to doctors were considered to be for or in connection with the performance of work and considered taxable wages. The Tribunal found that the center could not operate its business without the services of physicians, who not only provided services to patients but also to the center.
The operator of the medical center appealed the Tribunal’s decision, but the appeal was recently dismissed on all grounds.
5 Key Takeaways for Medical and Private Healthcare Providers
- The legal basis has been laid for investigations and audits of other medical and healthcare providers with similar arrangements by tax authorities. It would be wrong to assume that people would not ask questions about your practice.
- It remains to be seen whether the escalation of investigative and auditing activities would be politically acceptable for the government given the other challenges facing medical and health care providers and patient access to health services. essential health.
- Arrange a legal review of all contracts, services and payment terms with healthcare and healthcare professionals operating independently of your clinics.
- Seek legal advice on applicable exemptions, particularly if healthcare professionals operating from your clinics also work in other locations, or if you receive notice of an investigation or audit.
- If a liability exists, voluntary disclosure prior to any investigation or audit should mitigate the risk of substantial penalties being imposed on top of any tax liability.