Payroll Tax Ruling - Medical Centres

The Queensland Treasury has issued a ruling indicating they will apply the payroll tax relevant contract provisions to an entity that conducts a medical centre business, including GP clinics, dental clinics, physiotherapy practices and similar healthcare providers.

What Does This Mean for Medical Centres?

Payments made by medical centre businesses to medical practitioners may now be subject to payroll tax in QLD (at a rate of up to 4.95%) when it has long been considered by all parties, including the Queensland Revenue Office (“QRO”) that such payments were not subject to payroll tax. This may also bring some medical centre businesses into the payroll tax regime when to date their “taxable wages” have been less than $1.3M.

In arriving at this outcome, Queensland Treasury is matching the position taken in other States.

What Does the Ruling Say?

Public Ruling PTAQ000.6.1 explains how the relevant contract provisions in the Payroll Tax Act 1971 (Qld) apply to a contract between a medical centre and a practitioner who is engaged to serve patients for or on behalf of the medical centre.   Where a contract is a relevant contract, the principal (i.e. the medical centre) is deemed to be an employer and the contractor (i.e. the medical practitioner) is deemed to be an employee for payroll tax purposes. The amount paid by the principal to the contractor forms part of taxable wages and is then potentially subject to payroll tax.

A typical medical centre might operate with the practitioner carrying on a business of providing medical services to patients and the medical practice providing facilities and administration services to the medical practitioners.  However, the medical practitioner may also provide services to the medical centre, for example by being available to provide medical services to patients or clients of the medical centre, working a minimum number of hours per week or promoting the interests of the medical centre - especially if the medical centre holds out to the public that it is carrying on a medical centre business. 

If the medical practitioner is taken to provide services to the medical centre (and the ruling indicates this outcome is implicit in most medical services businesses), the contract between the medical centre and the medical practitioner (whether written or implied) will be a relevant contract.  The Ruling takes the position that all payments by the medical centre to a medical practitioner under the relevant contract will be taxable wages for payroll tax purposes unless an exemption applies.

For example, if under the relevant contract with the medical centre the practitioner is entitled to 70% of their patient billings and the medical centre is entitled to a 30% admin fee, the 70% paid or payable by the medical centre to the medical practitioner will be taken to be taxable wages unless exempt and thus subject to payroll tax if the medical centre business has total taxable wages of more than $1.3M. 

The Ruling also explains some of the anti-avoidance provisions which may be applicable, including the provisions dealing with third-party payments and grouping of employers, and also confirms that payments by the medical centre to a medical practitioner who operates through their own company or trust may still be taxable wages. 

Although the ruling takes effect from 22 December 2022, it represents the Commissioner of State Revenue’s view of the existing law and may be applicable to payroll tax periods prior to the date of the Ruling.  The Queensland Branch of the Australian Medical Association (AMAQ) has indicated to members that the QRO will limit any audit activities to payroll tax periods commencing 1 July 2021 but this is yet to be confirmed. 

What Are the Exemptions That Might Apply?

Exemptions from taxable wages that might apply to medical centres include:

• Medical practitioners that provide services to the medical centre for less than 90 days in the year.
• Medical practitioners who ordinarily provide medical services to the public generally – that is medical services to other medical centres and hospitals. Medical centres wishing to rely on this exemption must apply for a Ruling from the QRO if the services are provided to the medical centre by the practitioner for an average of more than 10 days per month.
• The medical service is performed by two or more persons – for example, if the medical practitioner employs or engages their own nurse or other medical practitioner to assist in providing the medical service.

Whose Issue Is This – Medical Centre or Medical Practitioner?

In the first instance this is an issue that needs to be considered by the medical centre business as opposed to the medical practitioners contracting with a medical centre business. However, where the medical centre business determines there is a potential payroll tax exposure, its likely the medical practitioner will need to be involved to explore the potential application of any exemptions (especially if a ruling is to be obtained from the QRO involving that practitioner).

What Should Medical Centres Do in Response To This Ruling?

As a starting point, medical centre businesses will need to determine if their annual taxable wages will exceed $1.3M, including payment to medical practitioners. This will need to be done for the years ended 30 June 2022 and for the year to date commencing on 1 July 2023 (based on the QQRO not reviewing positions taken prior to 1 July 2021, which is subject to confirmation). If the $1.3M threshold is breached, further action is needed.

Medical centres should consider each medical practitioner’s contract individually (case-by-case basis) to determine whether it is a relevant contract and/or whether an exemption applies and may need to consult a lawyer to obtain legal advice.  Medical centres should also assess the financial impact of the Ruling and whether any increased payroll tax can be recovered from practitioners or by an increase in patient fees.  There is an exemption for the first $1.3m of taxable wages per year, with the result that small medical centres may have an effective payroll tax rate of nil, or significantly less than the smaller employer 4.75% payroll tax rate (or 3.75% for regional employers until 30 June 2023).   

Note that where the medical centre is deemed to be an employer, and the medical practitioner is deemed to be an employee under the relevant contract, this will only be for the purposes of the medical centre’s liability to payroll tax.  The medical practitioner will not be an employee under common law and this Ruling does not impact the practitioner’s existing arrangements and entitlements in relation to PAYG withholding, income tax deductions, GST and superannuation. 

Impacted medical centre businesses must consider the need to register for payroll tax (if not already registered), amend previously lodged payroll tax returns (if already registered) and update their payroll tax compliance procedures to reflect these changes.

Please note that we are not legal advisors and cannot provide legal advice, including advice on contracts and payroll tax matters. We recommend that medical centre businesses and medical practitioners who are impacted by these change consult with their legal advisor as a matter of priority.