GP Payroll Tax: What Medical, Optical & Allied Health Practices Need to Know

Article Update! On 22 May 2024, the Victorian State Government announced that a further 12-month ex gratia exemption from payroll tax to contractor general practitioners (GPs) will apply through to 30 June 2025. This will be available for any GP business that has not already received payroll tax advice and begun paying payroll tax on payments to their contractor GPs on this basis.

The Government has also announced – though not legislated – that there will be an exemption for payments to contractor GPs and to employee GPs who provide bulk-billed consultations to patients from 1 July 2025. This is to encourage GPs to provide more bulk-billed consultations to patients.

Navigating payroll tax can be a daunting task for medical and health business owners. With recent legal developments around GP payroll tax (and contractor payroll tax more broadly) plus varying state-based laws, it's crucial to stay informed about how these changes could impact your practice.

If you operate a centre providing medical or other health-related services in Victoria, you may be affected by new guidance surrounding payroll tax for doctors and health-related contractors from revenue authorities on the relevant contractor provisions under the payroll tax rules.

In this article, our heath and medical industry experts break down the essentials of payroll tax exemptions, payroll tax for doctors, and what steps you can take to ensure compliance.

Understanding 'Taxable Wages' in the Context of GPs and Medical Contractors

The relevant contractor provisions are designed to catch payments made to contractors who are deemed to be employees for payroll tax purposes. The payroll tax rate is 4.85% in Victoria (1.2125% for regional employers). There is a tax free threshold where annual taxable wages are $700,000 or less.

‘Taxable wages’ is broader than what we would ordinarily think of as ‘wages’. They include:

• wages paid to an employee; and
• amounts paid in relation to the performance of work under a ‘relevant contract’.

The new guidance from revenue authorities follows a series of court cases that have applied the provisions to various industries, including centres providing medical or other health-related services.

What are the Relevant Contractor Provisions?

The relevant contractor provisions are there to capture contracts under which a person (the designated person) is supplied with services by another person ‘for or in relation to the performance of work’ in the course of the designated person's business. Such contracts are called relevant contracts and the payments made under them are generally subject to payroll tax, unless an exemption applies.

GP Payroll Tax Exemptions to Consider

There are three key exemptions within the legislation:

1. Doctor provides the services the public generally (i.e. other medical centres, hospitals)
2. Doctor performs work for no more than 90 days in a financial year
3. Services are performed by 2 or more people (e.g. doctor has their own employees or sub-contractors, unless their work is insubstantial in comparison to doctor’s services)

How the Changes Affect Centres Providing Medical or Health-related Services?

Centres providing medical or other health-related services often engage general practitioners (GPs) or other health professionals in the following manner:

• Centre engages doctors/health professionals as independent contractors.
• Centre provides rooms, administrative support (e.g. collecting Medicare fees for doctors/health professionals, receptionists) and support (e.g. nurses).
• Centre pays a percentage of Medicare claims to doctors/health professionals (e.g. 70%), and withholds a fee for use of consultation rooms and support services (e.g. 30%).

Recent GP Payroll Tax Case Law Developments

Recent interpretation of the relevant contractor provisions by the courts (e.g. Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] and Optical Superstores Pty Ltd v Commissioner of State Revenue [2018]) have clarified the operation of these provisions (plot twist – it’s not great news).

In these cases, the courts found that the GPs or optometrists provided services to the centres as well as to the patients, and that the services were for or in relation to the performance of work in the course of the centres’ businesses. Payments made by the centres to the contractors were therefore wages for payroll tax purposes. No relevant exemption could be relied upon either.

The main factors that the courts considered in reaching these conclusions were:

• The degree of integration and interdependence between the centres and the contractors;
• The contractual terms and obligations that governed the relationship between the centres and the contractors;
• The arrangements for the collection and distribution of Medicare payments and other fees from patients;
• The ownership and control of the patient records and goodwill of the centre;
• The nature and extent of the services and facilities provided by the centres to the contractors, such as nurses and receptionists.

As a result of these cases, the Victorian State Revenue Office (SRO) has issued Revenue Ruling PTA-041 confirming that the relevant contractor provisions may apply to the arrangements between centres and contractors, and that payroll tax needs to be considered in this context. The SRO has also indicated that it will continue to review and investigate the compliance of medical practices with the payroll tax law.

How to Stay on Top of Contractor and GP Payroll Tax

If you operate a centre in Victoria and you engage a health professional as an independent contractor, you should review your contracts and arrangements with them to determine whether they are caught by the relevant contractor provisions, and revise these arrangements if necessary. You should also consider whether any of the exemptions may apply to your situation.

If you are liable to pay payroll tax on the payments made to the health professional, you should see that you meet your payroll tax obligations. You may be subject to penalties and interest if you fail to comply.

Medical practices should:

• Review current payment arrangements with medical practitioners.
• Revise arrangements if necessary, considering leasing instead of licensing rooms and equipment, and engaging practice administration services.
• Assess if any exemptions apply.
• Seek professional tax law advice

Talk to BlueRock’s Tax Law and Payroll Experts

If you're unsure about the implications for your business, reach out to our experienced tax lawyers for tailored advice. Or if you’re looking for a payroll solution that won’t let payroll uncertainties disrupt your medical practice, check out our payroll subscriptions.