The Queensland Revenue Office (QRO) released a Public Ruling (PTAQ000.6.1) dated 22 December 2022, specifically in relation to relevant contracts and medical centres including dental clinics, physiotherapy practices, radiology centres and similar healthcare providers.
The specific purpose of the ruling is to explain the application of the relevant contract provisions in the Payroll Tax Act 1971 (QLD) to medical centres. All public rulings are important as when issued they represent the published view of the Commissioner of State Revenue.
We have previously written and discussed the outcomes of The Optical Superstore case from 2019 (VIC) and Thomas and Naaz from 2021 (NSW); both of these decisions were in favour of the Commissioner. The Public Ruling released by Queensland references both these cases in many instances.
Refresh on Payroll Tax
Payroll Tax is assessed on Australian taxable wages; the current Queensland threshold is $1.3 million. For employers who pay $6.5 million or less in taxable wages the rate is 4.75%, where more than $6.5 million the rate is 4.95%.^
Liability for Payroll Tax will also arise if established amounts are paid under a relevant contract and / or under an employment agency contract to a service provider. The ‘payment’ made under a relevant contract will be added to the taxable wages (generally employees wages and superannuation) and be taken into account in determining the annual liability for Payroll Tax purposes.
The Recent Ruling
Our view based on the public ruling issued, is that the intention of QRO is to capture and assess payments (regardless of the structure of how medical fees are banked) to Doctors under all Service Agreement arrangements, unless an exemption applies. The approach being taken is grossly unfair. This strict view by QRO will simply result in a transfer of wealth from the Commonwealth to the States at a cost to the patients.
There are 14 examples provided in the Public Ruling, some of the wording and terminology used in examples require clarification and results in ambiguity with QRO however the examples represent many familiar arrangements currently in place across majority of medical practices.
The Exemptions
The ruling focuses on three exemptions; if an exemption is satisfied no payroll tax liability under the relevant contract provisions will apply:
- Practitioner provides services to the public generally (read more detail below)
- Practitioner performs work for no more than 90 days in a financial year – for the same Practice or group of Practices (same ownership)
- Services are performed by two or more persons (however not applicable where an employed nurse from the Practice assists the Practitioner with a patient)
A contract between a medical centre and a practitioner is not a relevant contract in relation to a financial year if the Commissioner is satisfied the practitioner who provided the services under the contract ‘ordinarily performs services of that kind to the public generally in that financial year.’
To qualify for the exemption; the Practitioner must provide services of the same kind to other principals, such as other medical centres or hospitals. Whilst lots of Doctors in General Practice may work elsewhere the ruling is very prescriptive and aimed at making the exemption very difficult to comply with.
The big issue is that prior to claiming this exemption the medical centre is required to apply to the Commissioner for a determination; this is in complete contradiction to how our Income Tax Legislation works. The Commonwealth relies on self-assessment; why should this differ at a state level? The pressure and costs that will be faced by Practices to obtain professional advice to lodge the exemption is unwarranted.
The Bad News
Uncertainty remains in relation to the running of medical practices and payroll tax. The ruling outlines each contract must be considered individually and, on a case-by-case basis to determine whether it is a relevant contract.
A private ruling will provide certainty to a medical practice, however there are advisory costs that will need to be incurred in relation to the preparation and lodgement of the ruling and a possibly lengthy period before an opinion is granted by the Commissioner.
The Good News
QRO have provided assurance that audit activity will be limited to the period from 1 July 2021 (ie 2022 Financial Year and beyond) in relation to the contractor provisions and General Practitioners.
Where to from here?
- Understand your Practice exposure and risk if your payroll tax liability were assessed. For example, a medical practice that provides services to 2-3 Practitioners may fall below the $1.3 million threshold.
- Understand your statutory requirement to register under QRO for Payroll Tax.
- Consider your circumstances and increased costs of running your Practice
- Clearly understand and document which Doctors in your practice work elsewhere and whether they may fit the relevant contracts exemption
- Seek professional advice
Cutcher & Neale are a leading Medical Accounting and Financial Services company with over 70 years of experience with offices in Brisbane, Newcastle and Sydney. With a strong commitment to the medical industry, Cutcher & Neale are working on your behalf to ensure state revenue authorities, medical associations as well as local and state government departments are aware of the issues in relation to the future viability of many medical practices.
For more information on how Cutcher & Neale can assist you in regards to your payroll tax position, Contact Us or call 1800 988 522.
Important Disclaimer: The material above reflects General Advice only, and has not been prepared to provide specific Personal Advice to any particular individual(s). Readers should not act upon any matter or information contained in or implied by this publication without seeking appropriate professional financial planning advice.
^ Other rates may apply; including the mental health levy from 1 January 2023 or regional discounts
