What’s trending: Payroll tax developments in the healthcare industry

What’s trending: Payroll tax developments in the healthcare industry

06 September 2023

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Arrangements between healthcare professionals and medical centres have continued to be an area of uncertainty and debate. Those in the healthcare industry had been awaiting further guidance from the Revenue Offices in relation to the application of the ‘relevant contract’ provisions under Payroll Tax laws following recent court decisions. 

Since our last update on the Queensland (QLD) payroll tax revenue ruling and amnesty, rulings have also been released in South Australia (SA), New South Wales (NSW) and Victoria (VIC). In addition, an amnesty has also been announced in SA and Australian Capital Territory (ACT), and NSW has recently implemented a pause on audit activity and interest/penalties. Each of these developments and the key takeaways for affected businesses are outlined below.

This article focuses on the latest developments on the topic of ‘relevant contract’ provisions in the Payroll Tax Acts and its application to medical centres engaging medical professionals under facility and services arrangements.

NSW and VIC Payroll Tax Revenue Rulings

On 11 August 2023, Revenue NSW and the Victorian State Revenue Office published Revenue Rulings (Payroll Tax Ruling PTA 041 and Payroll Tax Ruling PTA-041), which set out their views on the application of the ‘relevant contract’ provisions for businesses that operate medical centres following the Optical Superstore and Thomas and Naaz decisions. 

These rulings are harmonised (i.e. materially identical) with the existing, recently released rulings on this topic in SA and QLD.

The rulings set out that a relevant contract will generally be taken to exist where:

  1. The practitioner carries on a business or practice of providing medical-related services to patients; 
  2. In the course of conducting its business, the medical centre:
    a.  provides members of the public with access to medical-related services; and
    b.  engages a practitioner to supply services to the medical centre, by serving patients on its behalf; and
  3. No ‘relevant contract’ exemptions are applicable.

‘Tenancy contracts’ continue to be recognised as potentially falling outside the meaning of a ‘relevant contract’, provided the practitioner does not supply services to patients for, or on behalf of, the landlord. Where a ‘tenancy contract’ is said to exist, the Chief Commissioner sets out the expectation that the practitioner will be responsible for their own advertising, patient appointments, and record-keeping and billing administration. That is, the practitioner must be supplying services to their own patients and not be supplying these services on anyone’s behalf.

Furthermore, the rulings also note that despite the labels within the contract, and in circumstances where the medical centre (under the scope of the contract) only provides administrative services to the medical practitioner, this could still be viewed as a ‘relevant contract’. In determining whether a ‘relevant contract’ exists, the Chief Commissioner will attribute significance to the question of whether the medical centre can exercise operational or administrative control, such as who operates at the centre, and when and where this can occur.

Compared to the key factors of relevance in the Thomas and Naaz decision, the Rulings appear to take a broader stance on when a ‘relevant contract’ would exist. This approach will likely address uncertainty among businesses as to the views of the revenue authorities on arrangements where fact patterns are not identical to those in Thomas and Naaz. Based on the views within the Rulings, outside of landlord/tenant arrangements (as described within the Rulings), it is anticipated most arrangements would fall within the ‘relevant contract’ provisions (unless an exemption can be applied).

Finally, the Rulings deal with the potential for payments, made by a third party directly to a ‘deemed employee’, to be taken to be a wage where they bear a relationship to services supplied under a ‘relevant contract’. Whilst examples within the Rulings are not exhaustive, one such example which provides insight into the views of the revenue authorities deals with the payment of Medicare rebates (presumably by Medicare) directly to the nominated entity of the medical practitioner. The payment by Medicare is recognised as a ‘wage’ paid by a third party, to a person other than the deemed employee, due to its connection to the ‘relevant contract’ established between the medical centre and the medical practitioner. 

We observe, for completeness, the commentary (in obiter) by Leming J (Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40), which may be interpreted as indicating circumstances of Medicare rebates (being paid direct from Medicare to practitioners) as not attracting payroll tax. Based on the Ruling, we anticipate the revenue authorities may approach such circumstances through an analysis of whether the ‘third party’ payment provisions have application. 

SA amnesty for eligible medical practices

Recently, the Government of SA announced that they will provide a Payroll Tax Amnesty on payments made to contracted General Practitioners (GPs) until 30 June 2024. 

Similar to the previously announced QLD amnesty, medical practices that receive the amnesty will not pay payroll tax on payments to contracted GPs during the amnesty period. This means medical practices that receive the benefit of the amnesty will commence paying payroll tax on payments made to contracted GPs from 1 July 2024, where an exemption to the relevant contract provisions does not apply.

In relation to the amnesty, we note that:

  • The amnesty is limited to contractor payments made to GPs registered with the Medical Board of Australia, excluding other medical and allied health practitioners;
  • If you are a designated medical practice wishing to apply for the amnesty, you must complete and submit a registration form by 30 September 2023;
  • Once the registration period closes, each eligible medical practice must submit a voluntary disclosure providing sufficient information for Revenue SA to assess their eligibility for the amnesty and payroll tax obligations for the relevant years; and
  • Applicants must comply with their payroll tax obligations from 1 July 2024 onwards.

For completeness, from July 2024, medical practices that did not register under the amnesty, if subsequently audited, may be audited for the full period available by law.

NSW pause in audit activity and interest/penalties

Since the announcement of the QLD and SA amnesties, there has been much speculation as to whether other states and territories will seek to introduce similar concessions. Whilst not an amnesty, updates to the Taxation Administration Act 1996 (NSW) received Royal Assent on 4 September 2023, which prevents Revenue NSW from conducting payroll tax audits on GPs and medical practices for a period of 12 months, to allow for ongoing consultation. There will also be a 12-month pause on tax penalties and interest accrued on outstanding payroll tax debts incurred before and at the commencement of the 12-month period.

These announcements will likely be welcomed by many within the industry. We note the following in relation to the applicability of these concessions:

  1. The concessions are specifically limited to GPs. Notably, ‘GP’ is specifically defined within the Act as a medical practitioner who is registered as a GP under the Health Practitioner Regulation National Law;
  2. The pause on audits applies to:
    a.  a GP’s payroll tax compliance; and/or
    b.  payroll tax compliance by an entity, which has a practice arrangement with a GP; and
  3. The Actrefers to a pause of penalties and interest payable by a GP. 

With respect to point 2(a) above, it is unclear whether this condition is equally applicable to practice arrangements between entities/principals (i.e. medical centres) and a private company or trust nominated by the GP as the vehicle through which they contract with the entity/principal. However, given the test is at an ‘entity’ level, an entity would seemingly be eligible if it had a combination of arrangements with:

a) GPs directly, and 

b) GPs via a company/trust and/or other medical practitioners who are not GPs. 

Revenue NSWs’ approach to these observations will hopefully become clear in due course. 

With respect to point 3 above, based on our experience, circumstances will likely exist where the payroll tax liability on such arrangements, and the consequential penalties and interest, are payable by the entity which contracts with the GP (e.g. a medical centre), rather than a GP. Relevantly, the GP is not commonly the entity responsible for payroll tax obligations in the arrangement with medical centres, and this poses a question to the applicability of this concession to the medical centres who are usually the deemed employers that are not themselves, GPs, as defined.

Temporary payroll tax exemption for medical centres in ACT

On 26 August 2023, the ACT Government announced the introduction of a temporary payroll tax exemption for certain GP medical centres. 

The following initiatives are available to practices with payrolls over the $2m threshold:

  • Waiving payroll tax liabilities until 30 June 2023 for medical practices that have not previously paid payroll tax on GP payments. This waiver will ensure general practice businesses are not subject to retrospective assessments;
  • To provide further time for GPs who support the community with reasonable levels of bulk billing to review their taxation arrangements, seek advice, and implement necessary changes to ensure future compliance with their payroll tax obligations until 2025; and
  • A payroll tax exemption on GP payments until 30 June 2025 for healthcare businesses making payments to GPs that are bulk billing 65% of all patients; have registered for MyMedicare; and register with the ACT Revenue Office by 29 February 2024. 

For completeness, we note that the ACT Government's announcement on the introduction of the temporary payroll tax exemption for medical centres has not yet been drafted into a Bill. 

Key takeaways

For those within the health industry, the release of these rulings provides greater clarity as to the views of the revenue authorities in respect to payroll tax and facility and service arrangements. 

To the extent not already actioned, businesses should review their arrangements with medical professionals, assess the extent to which a ‘relevant contract’ may exist, and where appropriate, assess which exemptions may be available.

For businesses that operate medical centres who engage GPs with a presence in either QLD, SA or ACT, a determination must be made (and actioned) by 30 September 2023 (or 29 February 2024, in the case of ACT), as to whether they would like to express an interest/register for the amnesty.

If businesses decide to register their interest for the QLD or SA amnesty, consideration should be given to arrangements with GPs in other states and territories, and with other medical professionals who may be impacted by the interpretations contained within the rulings. 

Should you wish to understand more about these developments, or if you are currently undergoing an examination of your arrangements with medical practitioners, please contact the PwC Employment Taxes team for assistance.

Contact us

Greg Kent

Greg Kent

Partner, PwC Australia

Tel: +61 412 957 101

Anne Bailey

Anne Bailey

Partner, Workforce, PwC Australia

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Paula Shannon

Paula Shannon

Partner, Workforce, PwC Australia

Tel: +61 421 051 476

Shane Pinto

Shane Pinto

Director, Employment Taxes, PwC Australia

Tel: +61 423 679 958

Adam Nicholas

Adam Nicholas

Partner, Workforce, PwC Australia

Tel: +61 2 8266 8172

Norah Seddon

Norah Seddon

Workforce Leader, PwC Australia

Tel: +61 2 8266 5864

Claire Plant

Claire Plant

Director, PwC Australia

Tel: +61 403 877 067