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Doctors in practice and payroll tax


Paul Copeland


26/10/2022 1:24:01 PM

Much of the payroll tax discussion has focused on implications for practice owners – but what does it mean for GPs?

GP doing paperwork.
Most individual doctors will be minimally impacted by the recent payroll tax developments.

There has been limited discussion on the impact of recent payroll tax developments on doctors who are not the owners of a medical centre but practice from the premises.
 
Doctors working from medical centres have colloquially been referred to as ‘contractor’ doctors for many years. This is changing, and these doctors are now often called tenant doctors, doctors in practice and practising doctors.
 
In this third article in our series on payroll tax, we consider issues related to doctors using the services of a medical centre and how payroll tax could impact them.
 
As discussed in previous articles, payroll tax is a state-based tax that applies to employers. As such, if you are not an employer, payroll tax does not apply to you.
 
In most cases, this rules out all sole trader doctors. So, where you are a doctor in practice and trading under your own name with a personal ABN, the income you generate personally is not considered salary and wages and therefore not subject to payroll tax.
 
However, if you are a doctor in practice and you have a medical company, then most likely your medical company could be employing you and therefore payroll tax needs to be considered.
 
If you are trading under this structure, the starting point is to consider the relevant payroll tax threshold in your jurisdiction. Most likely you will be under the threshold and therefore have no payroll tax liability.
 
One exception to this could be for GPs who own a majority interest in a medical practice or otherwise have a controlling interest in a medical practice. In that instance, if you are employing yourself under a medical company and also have staff in the practice, the payroll tax grouping provisions could apply to your circumstances.
 
The grouping provisions for payroll tax are complex and you should seek the advice of professionals to consider your circumstances if you are a practice owner and trading under a medical company.
 
We have been speaking with a number of independent doctors working in practice and there is a level of concern about payroll tax and the impact to them. As such, I have prepared some questions and comments below.
 
Question: My practice owner has been selected for a payroll tax review and is asking for information about the type of work I have done for the past five years and where I have been practising. Should I cooperate with my practice owner?
 
Comment: In this instance, it is likely your practice owner is seeking information about you to be able to provide to the relevant office of state revenue to try to apply a payroll tax exemption to payments made to you.
 
It is inconvenient but you would be helping the practice owner out with this information. The alternative could be very costly for the practice owner if an exemption cannot be applied.
 
Question: My practice owner is saying we need to rewrite the service agreements due to current issues. Should I be worried about this?
 
Comment: As with all legal agreements, such as a service agreement, it is wise to read the document and then also have an industry specialist solicitor read the document and provide comment.
 
The Thomas and Naaz case referenced areas of the service agreement which were relatively onerous on the doctors. As such, the trend has been to ‘weaken’ the terms of service agreements to help them comply with the requirements of the payroll tax exemptions.
 
Previously, many service agreements included restrictions on doctors working in certain areas, dictated that ownership of records stay with the practice and stated hours that the contractor must work in the practice. The updated service agreements do, in some cases, provide a favourable outcome to the individual doctor in practice.
 
Also, some service agreements have been written by the practice owner, practice manager or a solicitor who was not aware of the intricacies of the medical practice arrangements. When they are rewritten, you can expect to see more complex agreements.
 
Again, don’t be alarmed, this is not unexpected. The complexity of the agreement simply reflects current times and from a positive perspective, shows that the practice owner is being proactive in their approach to payroll tax and the relationship with their doctors.
 
Question: If I am deemed an employee for payroll tax, does this now mean I am entitled to superannuation?
 
Comment: The application of payroll tax to your arrangement does not necessarily mean you are considered an ‘employee’. As outlined in previous articles in this series, payroll tax is mainly being applied to ‘relevant contracts’ between the medical centre and doctors. As such, there is not a deeming of an employer and employee relationship.
 
Under the Superannuation Guarantee Charge Act and the Superannuation Guarantee Administration Act, superannuation is applied for the benefit of employees. Under S12(3) of the Act, ‘if a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract’.
 
For the most part, service agreements in place between the medical practice and the doctor provide for the doctor to receive services from the medical centre to allow them to practice – as opposed to the doctor providing services to the medical centre.
 
As such, it is unlikely that superannuation would apply to payments made to the doctor – even in the event where the arrangement is considered adversely for payroll tax purposes.
 
As such, the impact of payroll tax on individual doctors is minimal.
 
The current focus does provide an opportunity for agreements to be formalised and documented correctly. Further, it also highlights the importance of having experienced industry advisors in your corner.
 
The information in this article is general in nature and does not take into account your personal situation. Members with concerns are encouraged to seek their own professional, independent advice.
 
Members are also invited to complete this short survey to share their views on the potential impacts of payroll tax on practice owners and independent contractors.

The RACGP and William Buck will hold a free webinar on Thursday 27 October between 7.00 – 8.00 pm (AEDT) focused on what GPs need to know about payroll tax.
 
Log in below to join the conversation.



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Dr Simon Holliday   27/10/2022 10:33:31 PM

The author asks, "If I am deemed an employee for payroll tax, does this now mean I am entitled to superannuation?"
Most medical practice arrangements may attract PRT. Potentially both parties to a contract may be deemed as having a "relevant" contract and be levied PRT. As a sole trader, I paid a service fee to our practice company which was owned by my wife and me. NSW revenue deemed this "relevant" and levied PRT, although subsequently dropped this impost.
What various Commonwealth regulators will make of arrangements that have attracted PRT can only be guessed. We know the ATO wants to increase revenue by slashing the minimisation of tax such as by the use of trusts. It is not hard to imagine the ATO will be examining "relevant" contracts with glee. It is also not impossible that practice owners may be found at fault for not covering super and workers compensation insurance for "relevant" entities.