Given the high risk of payroll tax audit across the medical and allied health industry, it’s imperative for organisations to understand the changing payroll tax landscape. BDO employment tax specialist, Stefanie Merlino, explains the recently issued Revenue Ruling PTA 041, clarifying application of the relevant contract payroll tax provisions to an entity that conducts a medical centre business.
On 11 August 2023, the Victorian State Revenue Office, and the New South Wales (NSW) Office of State Revenue (OSR) issued Revenue Ruling PTA 041, setting out their view on the application of the relevant contract provisions to medical centres and allied health professionals.
This harmonised ruling follows Queensland’s lead, with Queensland having issued PTAQ000.6.1 on 22 December 2022 - refer to our previous article for further details. South Australia (SA) also introduced PTASA003 on 30 June 2023.
The purpose of the harmonised ruling is to clarify the application of the relevant contract payroll tax provisions to an entity that conducts a medical centre business (including medical centres, dental clinics, radiologists, physiotherapists, and other allied health professionals) where there is a services and facility agreement in place with a practitioner. Historically, many medical centres and allied health professionals believed these arrangements did not constitute a relevant contract for payroll tax purposes, on the basis that the practitioner supplied services to their patients and not to the medical centre. However, in recent years, these arrangements have attracted the attention of various revenue authorities, leading to litigation in VIC and NSW (notably, Optical Superstore Pty Ltd v Commissioner of State Revenue  HCASL 16 and Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue  NSWCA 40).
This has resulted in the revenue authorities clarifying their longstanding position that, for medical centres and allied health professionals who engage practitioners using a service entity to provide administrative and other services, payroll tax obligations will likely arise on payments remitted to the practitioner by the service entity.
It is important to note that these rulings have both retrospective and prospective application, on the basis they do not reflect a change in practice or interpretation of the relevant contract provisions to these arrangements.
There is a potential lack of awareness in the payroll tax implications surrounding these arrangements. Hence, an amnesty may apply to contracted general practitioners (GPs) in certain jurisdictions. To date, Victoria has not announced any amnesty arrangements (and, from what we understand, is not expected to).
Each amnesty operates differently, and in QLD and SA, it is important to note the following general requirements:
- The amnesty is not automatically available and, instead a medical practice must submit an expression of interest by the applicable cut-off date (by 29 September 2023 in QLD, and 30 September 2023 in SA)
- If successful, the medical practice will have an amnesty period for which payroll tax will not apply to payments made to contracted GPs (up to 30 June 2025 in QLD, and 30 June 2024 in SA) and for the previous five years.
The NSW measure was announced on 24 August 2023, with the amendment receiving Royal Assent on 4 September 2023. Of relevance:
- The OSR will pause payroll tax audits on GPs and their practices for 12 months
- There will also be a 12-month pause on tax penalties and interest that accrue on outstanding payroll tax debts incurred before and at the commencement of the 12-month period.
Meanwhile, the Australian Capital Territory (ACT) is the latest jurisdiction to issue a harmonised Revenue Ruling on these arrangements – PTA 041 was issued on 7 September 2023. An amnesty has been announced which automatically applies to payments remitted to GPs by medical practices up to 30 June 2023. Prospectively, a temporary payroll tax amnesty also applies to 30 June 2025, where the following requirements are met:
- The medical practice bulk bills at least 65 per cent of GP attendances
- The medical practice has registered for MyMedicare
- The medical practice registers to receive the amnesty with the ACT by 29 February 2024.
Northern Territory and Tasmania have not yet issued a revenue ruling on this matter, and any amnesty arrangements are also unclear. With respect to Western Australia, its payroll tax legislation does not contain relevant contract provisions, therefore these arrangements are not expected to attract payroll tax obligations and are not subject to the same scrutiny.
We are aware the various state revenue authorities are focusing on these arrangements; therefore, we consider there to be a high risk of payroll tax audit across the industry. Hence, we strongly encourage medical centres and allied health professionals to proactively review their services and facility agreements in place together with other arrangements, and consider the following:
- An amnesty may apply for medical practices operating in QLD, SA, NSW and the ACT who have services and facility agreements in place with GPs. The specific requirements in each jurisdiction should be considered, and appropriate steps taken
- The amnesty is limited to eligible GPs, therefore allied health professionals should be prepared for potential payroll tax obligations on these arrangements even when operating in the above jurisdictions, where there is a services and facility agreement in place
- Services and facility agreements should be reviewed, and an assessment of the relevant contract provisions should be conducted
- Where payroll tax obligations apply, there are a number of relevant contract exemptions that may be explored (noting the exemptions are not always aligned in the various jurisdictions)
- Where any exemptions are availed, care should be taken to ensure these positions are substantiated
- If a historic obligation is determined, the payroll tax liability should be quantified, and a voluntary disclosure lodged with the relevant state revenue authority
- Prospectively, medical centres and allied health professionals should revisit their commercial arrangements and determine whether the payroll tax position on these arrangements necessitates a need to reassess. For example, this may include moving from a ‘services’ arrangement to a ‘tenancy contract’ or increasing patient fees to offset the additional payroll tax impost.
Given the high risk of payroll tax audit across the medical and allied health industry, organisations must understand the changing payroll tax landscape. BDO has extensive experience in the payroll tax area and is here to assist you in navigating the payroll tax arrangements and implications as they apply to your organisation’s specific jurisdictions. If you have any questions regarding this article or would like assistance with any of the above, please contact a BDO employment tax specialist, or your local BDO adviser.
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