As you are probably aware, the recent payroll tax cases in NSW and Victoria have demonstrated the Office of State Revenue’s renewed vigour to try to undo well accepted medical practice structures, none more so than in the Optical Superstore case where recently the Victorian Court of Appeal found payments made to Optometrists by the Optical Super Store were subject to payroll tax.
It has long been thought that the payments by the practice to a healthcare provider under a service fee arrangement are not subject to payroll tax, as the money being paid to the healthcare provider already belongs to the healthcare provider, and is only being held by the practice on trust for the healthcare provider. Thus, were not deemed to be taxable wages under the ‘relevant contract’ provisions in the payroll tax law.
However, our traditional understanding of a healthcare provider engaging a practice to provide facilities and administration services in return for the payment of a service fee has now been turned on its head by the recent decision by the Court of Appeal of Victoria in the Commissioner of State Revenue v Optical Superstore Pty Ltd.
Prior to the most recent appeal it was agreed in the Supreme Court that as the funds received by Optical Superstore from patients were always held on trust for, and beneficially owned by, the optometrists’ entities, then the transfer of those funds to the optometrists’ entities were not ‘payments’ for the purposes of the Payroll Tax Act.
However, the most recent decision found that this ‘payment’ referred to above was instead considered to be a payment to the optometrists’ entities under the Payroll Tax Act.
As the funds transferred to the optometrists’ entities were held to be payments made for or in relation to the performance of work by the optometrists in providing services to Optical Superstore and patients under ‘relevant contracts’, the amounts transferred were taken to be ‘wages’ under the Payroll Tax Act, with the effect that Optical Superstore was liable for payroll tax.
What was so unique about Optical Superstore case?
Importantly, there were some unique features of the Optical Superstore model that are often not seen in medical practice arrangements which arguably were what caused the contracts to be ‘relevant contracts’ in the first place, including:
The unique features meant that the arrangements had an ‘employment-like’ quality about them. In that sense, arguably the arrangement was one for which payroll tax should have been payable.
More recent activity for Payroll Tax
Again, medical structures are under the microscope in the most recent payroll tax case, Homefront Nursing Pty Ltd v Chief Commissioner of State Revenue. In this case the scenario was similar: the medical practitioner engaging a third party to collect its medical billings and then receiving income net of a service fee, however the outcome was different to that of the Optical Superstore.
The NSW Civil and Administrative Tribunal determined that Medicare payments made to contracted general practitioners were in fact not subject to payroll tax and payments made by the practice did not fall under the definition of salary and wages. This decision was made despite the practice collecting ‘assigned’ payments directly from patients and remitting a percentage (post service fees being deducted) to the practitioners.
However, it was determined that payroll tax would be payable on ‘top up’ payments made and these were considered to fall under the definition of salary and wages. These ‘top up’ amounts were payable to the medical practitioner in their initial engagement and had the effect of guaranteeing income of a set amount each week regardless of patient billings.
Given this recent flurry of cases, medical practices should urgently review their arrangements to ensure they will not be caught paying unnecessary payroll tax.
Need more information?
Please watch our short video and download our checklist to see if your practice is at risk at: http://www.cutcher.com.au/medical-practice-audits
Get in touch with our office for further information and assistance if you believe your practice may need some assistance in this area (02) 4928 8500 or email@example.com.