To comply with current payroll tax laws, Medical and healthcare clinics using service entities to engage clinicians must check their service entity arrangements. If your clinic currently engages clinicians such as medical practitioners and allied healthcare professionals – such as dentists, optometrists, and physiotherapists – the payroll tax authorities within Australia will now be closely observing.
March 2020 saw the High Court deny leave to appeal from the Victorian Court of Appeal decision in The Optical Superstore Pty Ltd vs Commissioner of State 2019. The outcome of the case, simply, was to enforce the decision of the Victorian State Revenue Office (SRO) to impose payroll tax on the payments made by an optical retailer for services rendered by optometrists by the retailer as contactors.
While circumstances could be considered exclusive to this case, the SRO and other revenue authorities within Australia now believe the case reinforces the position that payments of fees earned by healthcare practitioners for members of the public, that are paid for by the patients to the clinic, and then consequently paid by the clinic to the clinician in which they operate, will now result in payroll tax.
With COVID-19 looming, the SRO has held new review activity in abeyance, however recent signs suggest the SRO along with other revenue offices within Australia, are once again active and now focusing on healthcare clinics and their payroll tax circumstances.
What should I do?
With this situation in mind, consider both your legal agreement with the health professionals that work in our clinic and the day-to-day basis with the clinic’s patients. Take into consideration how cash is collected and how it is applied to pay the clinic’s costs and the relevant healthcare professional.
Consult a legal adviser to confirm your payroll tax obligations on the payments you make to the healthcare professional in question.
What are the details?
State Revenue offices within Australia currently have medical and healthcare providers under the microscope regarding their payroll tax obligations.
Focus is being placed upon healthcare clinics and their arrangements surrounding healthcare professionals at their clinic.
In many circumstances, healthcare practitioners are either:
- Engaged by a service entity as contractors to work within a clinic; or
- Operating in their right of private practice, while also entering a contract with the service entity for the service entity to then provide administrative services for the medical practitioner.
The recent Optical Superstore case exemplifies the focus of revenue offices applying payroll tax to payments made by the centre or clinic to healthcare practitioners. With regards to the case, Optical Superstore was the owner and operator of an optical clinic. The SRO raised an amended assessment for payroll tax in relation to payments made by Optical Superstore to optometrists who had provided services to the public located at Optical Superstore’s facilities.
The details of the case may be related to other medical and healthcare providers, in that:
- Optical Superstore owned and managed an optical store;
- Generated income from optical sales and the provision of eye tests to the public; also
- Optical Superstore paid a portion of the income to the involved optometrists.
Ultimately, the case was heard by the High Court of Victoria. The outcome was that payments made to the optometrists were considered to represent payment for work performed by the optometrists under ‘contract provisions’ of payroll tax law, due to the arrangement involving ‘relevant contracts’ regarding the performance of work by the involved optometrist to the clinic.
The work performed by the optometrists in each store facilitated the sales of optical products by Optical Superstore. Therefore a nexus was established, which was able to solidify the argument that the optometrists were indeed working for Optical Superstore. As a result, the payments made to the optometrists were considered as wages and consequently subject to payroll tax.
What are the key risks and issues?
The Optical Superstore case has led the SRO to explore similar issues involving medical and healthcare providers. The facts within the case can be confined to the unique arrangements. However, there is unfortunately no ‘safe harbour’ which must see each business consider their own position and arrangements.
Predominantly, an outcome will depend on the following matters:
- Specified wording in any service arrangements between the medical centre or clinic and the medical professional in question. Owners of medical centres or clinics may need to consider whether they are simply collecting income on behalf of the medical professional or if the practitioner is in fact working for them
- What happens on a daily basis with the management of the practice? For example, the accounting of patient fees and service fees will be of ample importance, as will the banking arrangements of the fees in question.
When appropriate, exemptions can still be applied. However, these exemptions are very fact specific and will require further fact finding.
The SRO and other revenue offices around Australia could also target other industries and professions where service entity arrangements are of a similar nature to that of healthcare. Essentially, the specific case will be determined on the written agreements that are in place and how the practice is managed on a daily basis.