Medical practice owners should be aware that agreements entered into with medical practitioners for the use of shared administrative and medical support services as well as the use of rooms may attract payroll tax liability. On 14 March 2023, the NSW Supreme Court of Appeal dismissed an appeal by the applicants in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue which found that a medical practice was an employer of the medical practitioners and therefore liable under the relevant payroll tax provisions.

Background

The applicants operated three medical practices across Western Sydney employing nurses, receptionists and other administrative staff. The medical practitioners working at the medical practices did so in accordance with a written agreement which was supplemented by some informal arrangements. Typically, the medical practices bulk billed for the services they offered. This meant that payments from Medicare were paid directly into the applicant's bank account. The applicants paid 70% of the proceeds to the practitioners and retained the other 30% as a fee for the provision of the services provided to the practitioners.

The primary issue here is whether the payments made to the practitioners attracted any payroll tax liability.

Decision

At first instance, the Tribunal had found that the practitioners not only provided services to the patients, but also to the applicant. The following provisions of the agreement between the practice and practitioners were found to be instrumental in this finding:

  • The services were provided on a 5 day per week basis, including weekend rotations with express provisions where the practitioners had to provide advance notice of planned vacations;
  • The practitioners had to promote the interests of the practice which included not channelling patients away from the applicant;
  • Practitioners had to abide by the applicant's protocols and complete all necessary documentation for that purpose; and
  • The agreement contained a restrictive covenant that barred doctors who departed from the practice from practicing within a 5-kilometer radius of the practice location for a duration of 2 years.

The Tribunal found that as a result of the above evidence, the applicant was deemed to be an employer and the medical practitioners were therefore employees. As a result, the payments of 70% of the Medicare benefits were deemed by section 35 of the Payroll Tax Act 2007 (NSW) to be deemed wages and attracted payroll tax liability.

The NSW Court of Appeal found that these were findings of fact rather than questions of law which the Court had no jurisdiction to appeal. Hence the appeal was dismissed

On the other hand, three of the medical practitioners did not attract any payroll tax liability. At [67] the Court of Appeal stated although "quite artificial", the fact that the relevant practitioners received the relevant benefits instead of the practice and remitted 30% of the payments to the practice, this did not in fact attract any payroll tax. The Court outlined that one of the elements in which the provisions operate is the making of a payment by the deemed employer to the employee, not the other way around. Hence the payment by the employees, the practitioners, to the practice did not enliven the relevant payroll tax provisions and no liability arose.

Implications

Although a NSW decision, given the uniformity of the Payroll Tax legislation across Australia, practitioners in other states such as Victoria should be cautious in how they operate their practices. Given the ambit of the payroll tax provisions, any payments made to medical practitioners may attract payroll tax.

Hence practice owners are encouraged to review their existing agreements with their medical practitioners and are advised to structure their agreements accordingly to this decision to avoid liability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.