On 19 September 2023 the Queensland Revenue Office (QRO) issued a revised Public Ruling regarding payroll tax and relevant contracts for medical centre businesses.  The Public Ruling can be accessed here. 

The QRO has provided further clarification regarding the application of payroll tax to medical centre businesses and we are particularly pleased that it is clear there is a path practices can take to ensure payments made directly to doctors will not be deemed wages for the purposes of payroll tax.

The revised ruling applies to all health practitioners including doctors, dentists and physiotherapists.

One area the revised Public Ruling addresses in more detail than the previous Public Ruling is the circumstances in which payments may be deemed wages of the medical centre for payroll tax purposes.

The Public Ruling identifies, broadly, three ways that payments might flow between patients, medical centre businesses and practitioners, and whether in each circumstance any of the payments would be deemed wages of the medical centre for payroll tax purposes.

First, the assigned Medicare benefit, and any out-of-pocket fee, are paid to the medical centre. The medical centre then pays the practitioner (i.e. as a sole trader), or the practitioner’s entity (such as a company or trust that a practitioner uses as a trading entity), net of an administration fee. In that circumstance, the payment by the medical centre to the practitioner or practitioner’s entity (as the case may be) is deemed wages.

The QRO’s position regarding this arrangement reflects the position set out in the previous Public Ruling.

Second, the assigned Medicare benefit, and any out-of-pocket fee, are paid directly to the practitioner (i.e. as a sole trader). The practitioner then pays an administration fee to the medical centre. In that circumstance, no payments are deemed wages.

The QRO’s position on this arrangement was not set out in the previous Public Ruling. However, it reflects the view that we and other legal practitioners have held.

Third, the assigned Medicare benefit, and any out-of-pocket fee, are paid to the practitioner’s entity. The practitioner’s entity pays an administration fee to the medical centre and pays the balance to the practitioner. In that circumstance, the payment by the practitioner’s entity to the practitioner is deemed wages.

The QRO’s position on this arrangement flow was not precisely set out in the previous Public Ruling. This position is of concern because in our experience a significant proportion of practitioners provide their services through an entity such as a company or trust, rather than as a sole trader.

Whilst we understand the QRO’s rationale for expressing this view, having regard to how the legislation is drafted, it does create what is in our view an unfair distinction between practitioners who practice as sole traders and those who practice through entities. In either case Medicare and out-of-pocket payments are flowing directly to either the practitioner or their entity, and no payments are flowing from the medical centre to the practitioner or their entity – so why should payroll tax apply to one and not the other?

One consequence of this Public Ruling is that practitioners may have to be engaged by the medical centre as sole traders (rather than through an entity) to avoid the medical centre being liable for payroll tax. In that situation the assigned Medicare benefit, and any out-of-pocket fee, would also need to be paid directly to the practitioner.

This of course may have other consequences for practitioners such as possible loss of asset protection and the loss of tax benefits. Doctors may also have transactional, tax or duty consequences if they want to restructure.

Also troubling is that the Public Ruling looks unfavourably on distributions from unit trusts and may treat those payments as deemed wages for payroll tax purposes as well. This is of real concern for practice owners who are also doctors as legitimate trust profits could be treated as wages for the purposes of payroll tax.

The main benefit of this new Public Ruling is that lawyers and accountants are able to provide the medical, dental and allied health professions with clearer guidance as how best to approach the issue of payroll tax but there is now immediate pressing risk for a number of practices who have certain fee collection and banking arrangements in place.

We are grateful that we were provided the opportunity to consult with the Government in conjunction with AMA Queensland and Cutcher & Neale to assist in achieving this result for the medical profession in Queensland.

There will be more updates once we review the Public Ruling in more detail and discuss with relevant stakeholders.

The information in this article is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances