Hillhouse Legal Partners are proud to have a longstanding commitment to the medical profession and given our many and close relationships with members of that community particularly we have been monitoring the state of play regarding payroll tax and medical practices. That focus increased in light of the Victorian Optical Superstore decision and the more recent New South Wales decision of Thomas and Naaz which we previously discussed here.

Just before Christmas 2022, the Queensland Revenue Office (QRO) issued a Public Ruling regarding payroll tax and relevant contracts for medical centre businesses. A copy of the Public Ruling can be found here (the Ruling).

Generally, the Ruling clarifies the QRO’s position in assessing payroll tax. Currently in Queensland, payroll tax is generally only payable if the employer or group of employer’s payroll is over $1.3 million. The rate of tax starts at 4.75% of that payroll.

The Ruling in our view is a strict interpretation of the law and makes it clear that in most circumstances where a medical clinic employs, contracts with, or has an agreement (such as a service agreement) with a doctor, that arrangement may be a relevant contract for the purpose of assessment of payroll tax. We note that the Ruling may also have important implications regarding arrangements where health professionals and other persons are engaged by medical practices outside of an employment relationship.

Relevant contract is a very important term under the governing legislation. A relevant contract is the arrangement that is considered when assessing whether monies are taxable wages for the purposes of payroll tax liability. If the agreement between the doctor, health professional or any other person and the medical practice is a relevant contract, payment made under that relevant contract will be assessed for payroll tax purposes.

The Ruling makes it clear that each contract must be considered individually on a case-by-case basis to determine if it is a relevant contract. If the contract provides, either expressly or by implication that a practitioner (either a person or a company engaging that relevant practitioner) is engaged to supply work related services to the medical centre by servicing patients for or on behalf of the medical centre the contract will likely be considered to be a relevant contract for the purposes of assessing payroll tax by the QRO.

On our preliminary reading of the Ruling, the QRO has taken a strict view. In addition to making it clear that any interaction or relationship or distribution of information or money between the medical centre and the relevant person will likely cause the QRO to come to the view that such an arrangement is a relevant contract for the purposes of assessing payroll tax. On some commentator’s interpretation the only exception may be where the doctor is using the medical centre to see and treat the doctor's own patients.[1]

In other very limited circumstances the arrangement may not be a relevant contract for the purposes of payroll tax assessment. In the Ruling, the QRO does outline some exemptions. These circumstances are very limited, mainly the person was providing services of the same kind to other principals such as medical centres or hospitals, or they were working for no more than 90 days in a financial year. If an exception is to be considered, it is imperative advice is sought.

The acting Commissioner has indicated that audits may not be retrospectively applied to financial years prior to the FY 22 and will only be prospective from the 2021-2022 financial year onwards. Whilst that perhaps gives some comfort to some medical centres that component is an administrative decision subject to change, and of course does not relieve anybody with compliance of the law. As the Public Ruling notes, medical centres must keep records for a minimum of 5 years after the end of the financial year in which wages were paid or become payable.

Given the similarities of the payroll tax legislation across Queensland, New South Wales and Victoria, while the Ruling is not binding outside Queensland it may be of interest to medical practices in New South Wales and Victoria.

Given the existing issues with payroll tax and how it is assessed under current legislation, it now appears the Ruling has made the QRO‘s view even more strict. Given the obvious importance of a viable medical profession Hillhouse Legal Partners in collaboration with various bodies and groups including the AMAQ is exploring alternate avenues regarding further clarity with all bodies to provide some comfort to the medical and health profession generally. There will likely be further clarity and information on this issue and the implications of the Ruling so please watch this space.

If a business operating a medical centre is currently being audited, encounters any payroll issues in their arrangements or relationships with doctors or other persons providing services to their business, or otherwise has reason to believe the Ruling may affect them, we recommend that they seek legal advice from Hillhouse Legal Partners in conjunction with medical accounting experts. 

For more information about the Ruling please contact Zac Herps by phone 07 3220 1144 or email.

[1] William Buck (2023), Payroll Tax Ruling DS, available from https://www.linkedin.com/posts/paulcopelandwbqld_queensland-payroll-tax-ruling-activity-7018774230234263552-7OyX?utm_source=share&utm_medium=member_desktop.