There has been some recent uncertainty on the payroll tax position on the medical and health practices. The issue is whether the amounts paid by a clinic to a clinician under the “associate” model are likely to be considered as “wages” of the clinic for payroll tax purposes.
Decisions from two recent cases (Optical Superstore and Thomas & Naaz) are now suggesting payments made by healthcare practices to their clinicians under the associate (also known as a “tenancy and agency”) model would be subject to payroll tax. The Optical case relates to optometrists and Naaz deals with doctors.
What was the issue?
The associate model is generally structured on the basis that the clinicians are conducting their own business and performing work for the patients, with the support of the clinic. As part of these arrangements, it was commonplace for the clinic to collect patient fees from the patients on behalf of the clinicians and after deducting a management fee, pay the balance to the clinician. Before the Optical decision, it was thought that the payments made by the clinic to the clinicians under this arrangement are not subject to payroll tax.
Although the facts for both the Optical and Naaz cases are quite different, the agreements between the clinic and the clinicians have been held to be a “relevant contract” under the contractor provisions of the relevant Payroll Tax Acts. In the Naaz decision, the NSW Civil and Administrative Tribunal (NCAT) considers that the doctors were providing services (in a contractual sense) to the medical practice rather than to the patients.
We understand from payroll tax audits conducted subsequent to the Optical and Naaz decisions, both the Victorian and NSW revenue offices are maintaining the view that nearly all healthcare practice arrangements are now potentially subject to payroll tax.
It is also understood that Revenue NSW (and potentially payroll tax offices from other states) will issue a guidance document confirming the application of the payroll tax to healthcare practices.
What is likely to happen?
Subject to the contents of the guidance documents, we anticipate the State Revenue Offices would increase their audit activities and take the position that the payments to the associates are wages for payroll tax purposes. Interest and penalty would be imposed for the underpayment of payroll tax.
Points for consideration
It is uncertain whether a restructure of the associate arrangement would be acceptable by the revenue offices. In the meantime, where the associate model is to be continued, it may worth considering for the clinic to stop accepting or handling patient fees on behalf of the associates. For example, the clinic may require each clinician have their own EFTPOS / Hicaps terminals.
Where the clinic continues to handle patient payments for the clinicians, consider such payments to be taxable wages for payroll tax purposes.
There is also a concern that the Naaz decision may mean that clinicians are also employees of the clinic under superannuation guarantee and PAYG purposes. To mitigate such SG / PAYG risks, consider only engaging associates where they are not using a sole-trader ABN.
We will publish further updates as they come to light.