Payroll Tax: The Thomas and Naaz Case – Cause for Concern

By Cutcher & Neale Accounting and Financial Services - September 29, 2021

A decision handed down on 3 September 2021 by the NSW Civil and Administrative Tribunal (NCAT) in the case of Thomas and Naaz P/L v CCSR [2021] NSWCATAD 259 (‘Thomas case’), has again increased concerns of many medical practitioners that their administrative service entities have payroll tax exposures.

In the case, the NCAT held that the payments by the medical practice administrative service entity to the medical practitioners were wages for payroll tax purposes. This is despite the fact that the payments were from Medicare claims made by the medical practitioners.

The case was being treated as a test case by many medical practitioners in NSW. It has Australia wide application. A Victorian case (Optical Superstore) had found a similar result but involved facts unlike those implemented by most medical practitioners. The Thomas case is the first one with features similar to most administrative service arrangements which is of great concern.

Like most general practices operating throughout Australia, including all the corporate practices, Dr Thomas was billing, on behalf of his doctors, patient fees and charging a flat 30% service fee on everything the doctors had billed.

The Thomas case decision has deemed that the main determining issue is how the money flows into a practice bank account, and then out of it to the doctors who work at the practice. In this case, the administrative service entity paid to each doctor amounts equal to 70 per cent of the claims paid by Medicare for that particular doctor (without any deductions for tax or superannuation or otherwise). The remaining 30 per cent was retained by the administrative service entity as a service fee.

The Thomas decision establishes that if there is any flow of funds between the practice and the provider or anyone associated, this will be deemed a relevant contract where obligations are imposed such as restraints of trade in the contract of the doctors working in the practice. It is important to note, that the doctor payments were reported in profit & loss statements as expenses.

We are actively working with industry bodies to seek clarification from the relevant authorities.  

If you would like to discuss your circumstances, please do not hesitate to contact us.


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