(First published in Australian Doctor Magazine - October 2021)
As we proceed to the close of 2021 and the country slowly emerges from the COVID-19 pandemic, I cannot recall a time we have felt more gratitude for our doctors and the care they offer.
However, simultaneously, the threat to GP practices from the states’ impost of payroll taxes places our health system under greater threat than ever before.
At worst, it could end with a Coles and Woolworths-type corporate takeover of general practice as GP owners decide it's too much.
Why is the payroll tax issue, which has rumbled on in the background for some time now, in the news again?
It follows a NSW Civil and Administrative Tribunal decision last month that ruled the “onus of proof” lies with practices to show their GPs are not employed — even when contracts specify that they are contracting services from the practice.
The ruling was made on a case involving three clinics owned by a Sydney GP.
NSW tax officials argued that, although the practices received 30% of the doctors’ billings, the remaining 70% was technically being paid as wages under the NSW Payroll Tax Act 2007.
This meant the GPs’ combined ‘salaries’ went above the $900,000 payroll tax threshold.
Revenue NSW argued that the clinics relied on the doctors to operate as a business and were therefore employing them.
It also pointed out that, like any other employees, the doctors had contractual obligations such as working hours and an annual leave policy.
Patient records also remained the property of the practices rather than the doctors.
So what will happen on the back of the ruling? There are a number of scenarios and questions:
- Will state revenue departments and Medicare collaborate to sort the issue out given its impact?
- Will a courageous practice owner and bold legal team make an appeal? With a strong defence giving security by delivering a precedent that's fair and equitable?
- Will there be a reshuffle of administrative and financial arrangements that will to ensure the payroll tax burden doesn’t come to fruition?
- Will such a reshuffle come with additional cost for software fees, banking fees and excessive administration time to practice owners and associate doctors?
The bigger question is: Can GPs withstand the stress involved in navigating and tolerating this issue, and how many will see it as the last straw in an already thankless role and exit practice ownership, leaving our communities more vulnerable than ever?
I continue to live with hope that the first scenario will play out – that some fix will be done.
However, as each case decision is handed down it leaves me with more and more concern that we will end up with practices having to absorb the burdens.
The latest tribunal decision has certainly delivered a devastating blow and one that needs to be met with due concern, caution and reflection.
Our thoughts on the position as it currently stands are:
- It was a NSW Civil and Administrative Tribunal decision. This is the equivalent of one case officer reviewing the decision of another case officer. It is not a court decision.
- Notwithstanding this, it does highlight the approach the tax commissioner is likely to take in future cases with a focus on the “relevant contract” rules.
- We are yet to see whether the tribunal ruling will be appealed. The absence of an appeal does not suggest the lack of legal rebuttal and will also be met with commercial consideration, for the cost of appeal may well be more than the payroll tax liability itself. It remains to be questioned whether the decision is in fact wrong at law.
Specifically, from the known facts, while it seems relevant in this case to conclude that the doctors did in fact provide services to the practice – ie days of work, abiding by protocols, restrictive covenants – it is doubtful that the payments to the doctors via their billings were in fact related to the provision of those services.
If this is the case they should not have been subject to payroll tax.
We observe a range of different structures and circumstances under which practices operate and interact with their patients and associate doctors.
Many sit comfortably outside the risk of payroll tax but others need further review and consideration.
State revenue departments are offering not to apply interest and penalties for voluntary disclosure.
It is not their role however, to critically assess your structure and circumstances and advise you on your exposure.
It is our strong recommendation that in any voluntary disclosure you seek advice and ensure you understand your position first.
Even if you have previously modified your contracts or flow of funds, the latest tribunal case (if not appealed) will give rise to the need for another review to confirm if the goal posts have moved again.
An understanding that tailored software, finance and administration solutions are well advanced is arguably the only “sleep at night” solution to provide complete peace of mind that future arrangements will be cost effective to administer and without risk of payroll tax exposure.
There are no winners here.
An increased payroll tax impost will surely need to be met with more Medicare funding. And to me that drives a “nil sum game” for our collective revenue authorities.
In the background, any changes forced on contractual arrangements between practices and associate doctors will move more control to the associates.
The balance in that arrangement is already tipped in favour of associates and the burden of practice ownership is already heavy.
If the pendulum swings further and we drive practice owners away, who will be left to stand behind practices and provide the necessary infrastructure for GPs to service their communities?
Are we headed for a corporate world?
Is this the Coles and Woolworths future of general practice, or will common sense prevail?
If you have any questions regarding the above, contact Director of Business Services and Taxation, Megan Smith at email@example.com. Alternatively, we have Specialist Health Sector Advisers in each of our offices. If you would like to speak to one in your location, call 1300 795 515.