Understanding Payroll Tax Liability and Relevant Contracts in Medical Centers

If you operate a medical center or health care practice that contracts with practitioners to provide services to patients, understanding payroll tax liability is crucial.

Recently, the revenue authorities in NSW, Victoria, South Australia and Queensland issued rulings confirming when medical practices are subject to payroll tax. These rulings were triggered by court decisions in the Optical Superstore case and Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue.

In this post, we’ll delve into the specifics of the rulings and how they apply to medical centers and similar health care providers.  We'll explore recent legal decisions,exemptions, and key considerations regarding payroll tax liability.


The purpose of the ruling

The purpose of the ruling is to provide greater clarity to medical center businesses and confirm the longstanding position of the Revenue Authorities in determining whether there is a payroll taxliability on the payments made by the medical centers to the practitioners.

Most importantly, it should be noted that the ruling does not represent a change in practice or interpretation.

As the ruling applies to existing arrangements and can have a retrospective effect, you must immediately take the following actions:

  • assess how the existing arrangement should be treated under payroll tax law;
  • whether payroll tax shortfall arises on a retrospective basis; and
  • whether an increase in the payroll tax on costis likely on an ongoing basis.

In the event you are negatively impacted, you should considerthe concessions that are available to help you reduce the impact, including interest and penalties on the shortfalls.


What is the ruling all about?

Generally, payroll tax is payable by employers on all taxable wages paid to a common law employee. In a very simple explanation, a common law employee means anyone who performs services for you is your employee if you can control what will be done and how it will be done.  

The ruling confirms or clarifies that payroll tax is also payable where amounts are paid to a contractor under a relevant contract. An example is a contract between a medical center and the practitioner. In this instance, the medical center is deemed to be an employer, the practitioner is deemed to be an employee, and payments made under the contract for the performance of work are deemed to be wages.

The contractor payments were added to the payroll tax law because of the increasing use of contractor arrangements to convert common law employees to contractor arrangements to avoid payroll tax. Therefore, in addition to wages paid to a common law employee, the payments made to contractors providing services under a relevant contract are subject to payroll tax.


When is a contract between a medical practiceand the practitioner a relevant contract for payroll tax?

The medical centre and each practitioner engaged by the medical center are carrying on separate but related businesses.

The medical center provides patients with access to medical services provided by practitioners. The medial center also provides services tothe practitioners by attracting patients, advertising, arranging appointments, maintaining patients records, and patient billing – directly or bulk building to Medicare.

The services provided by the practitioners are provided inthe course of their own business. However, the medical-center has operational and administrative control over the practitioners if it is able to influence matters such as who practices at the center, the hours and days when they practice, and the space within the center where that occurs.  

A contract between an entity that conducts a medical center business and a practitioner is a relevant contract for payroll tax purposes if all the following applies:

  • The practitioner carries on a business or practiceof providing medical-related services to patients.
  • The medical center provides members of thepublic with access to medical-related services and engages a practitioner tosupply services to the medical center by serving patients on its behalf.
  • An exemption or exclusion does not apply.

Put simply, if the practitioner serves patients for or on behalf of the medical center, the contract is a relevant contract. Having said that,each contract must be considered on a case-by-case basis to determine whether it is a relevant contract.

The meaning of contract is very broad. It includes an agreement, arrangement or undertaking, whether formal or informal and whether express or implied. So, it doesn’t matter what you call the arrangement.

Let’s look at an example.  

ABC Pty Ltd (ABC) operates a medical centre that provides patients with access to a range of medical services performed by qualified practitioners who are engaged by ABC to service patients of ABC. A patient who consults a practitioner engaged by a medical centerto serve patients of the medical center is a customer of both the medical centerand the practitioner. Practitioners are engaged by ABC to provide their services to the medical centre by serving patients of the medical centre in accordance with the terms of individual contracts. The contracts also require ABC to provide practitioners a consultation room for patients, manage appointments, maintain patient contact information and medical records, collect fees from patients and pay practitioners a share of revenue. Each contract between ABC and a practitioner satisfies the requirement to supply because practitioners are required to serve patients for or on behalf of ABC. The elements of a relevant contract are satisfied because the services are supplied by each practitioner ‘in the course of a business’ and are supplied ‘ in relation to the performance of work’ by the practitioner.


What if the practitioner is engaged from apractitioner’s entity such as a company or a trust?

The simple answer is, it doesn’t matter.

Continuing with the above example, let’s say ABC wants to engage a practitioner, Dr Federico. Dr Federico carries on his business via Federico Family Trust of which F Pty Ltd is the trustee. ABC enters into acontract with F Pty Ltd under which F Pty Ltd is to supply healthcare services at the ABC medical center. F Pty Ltd engages Federico to work as a practitioner at ABC’s medical center. F Pty Ltd, in the course of its business, supplies the services of Federico to ABC, and the services are supplied in ‘relation to the performance of work’. Dr Federico may be taken to be an employee of ABC because Dr Federico performs the work in relation to which health care services are supplied under the relevant contract, and the payments made by ABC to F Pty Ltd under the contract may be considered as wages for payroll tax purposes.


What are the exemptions from relevant contractprovisions?

If an exemption applies, no payroll tax liability arises under the relevant contract. There are 3 exemptions that apply to a contract between a medical center and a practitioner.

  1. The practitioner provides services to the public generally.
  2. The practitioner works for no more than 90 days.
  3. Services are performed by two or more persons.


Providing services to the public generally

To qualify for this exemption, the practitioner must provide services of the same kind to other medical centers or hospitals. The practitioner providing services to the patients for or on behalf of a single medical center may not satisfy this requirement.  

If the practitioner practices at multiple medical center but those centers are members of the same group for payroll tax purposes, the medical center will not be entitled to the exemption.

Let’s look at few examples to understand this exemption.  

ABC engages Dr Taylor under a contract to serve patients at the medical centre. Dr Taylor also provides similar medical services to a range of other principals including medical centres and hospitals during the financial year. Dr Taylor performs work under separate contracts with these principals concurrently during the financial year. The contract between ABC andDr Taylor is not a relevant contract, and the payments made by ABC to Dr Taylorare not subject to payroll tax.

ABC engages Dr Sou under a contract to provide medical services to patients at its medical centre for 5 days a week on a full-time basis. Dr Sou is also engaged by Top Care Pty Ltd (Top Care) to provide similar health care services after hours on an ad-hoc basis to Top Care’s patients at their home. Under the contract with Top Care, Dr Sou generally spends 1–2 hours per week serving Top Care’s patients, due to restrictions under Dr Sou’s contract with ABC. The contract for medical services between ABC and Dr Sou is unlikely to be exempt.


Working 90 days or less in a financial year

If a practitioner performs work under a contract for no more than 90 days during a financial year, the contract is exempt for that financial year. Each calendar day on which the practitioner performs work counts as 1 day, regardless of the time spent working on aparticular day.


Services performed by two or more persons

This exemption applies if the practitioner and at least one other person employed by the practitioner perform the work required under the contract. The work performed by the second person must be work required to be performed under the contract between the medical centre and the practitioner.

The exemption does not apply if the second person is engaged by the medical centre, not by the practitioner, to provide the services.

The exemption also does not apply if the second person provides general business-related services that are not required to be provided to the medical centre under the relevant contract (for example: tax, accountingor business advisory services provided to the practitioner).

For example, ABC operates a dental clinic and engages Dr Joanne as a specialist to provide complex procedures to patients and Joanne employs a specialist nurse to assist her in those procedures. The contract between ABC Dental and Dr Joanne is exempt.

In this example, ABC, and not Dr Joanne, employs aspecialist nurse to assist Dr Joanne in performing complex dental procedures. The ‘2 or more persons’ exemption does not apply because the nurse is employed by the medical centre, not by Dr Joanne.

What concessions are available from the Revenue Authorities?


Payroll tax on payments made to General Practitioners (GP) is waived until 30 June 2023 and the compliance deadline is extended to 2025.

For practices that bulk bill 65 percent of all patients and have registered for MyMedicare, payroll tax on GP payments is waived until 30June 2025.

To avail of these concessions you will need to make an application to the ACT Revenue Office by 29 February 2024


There is an amnesty available on GP payments for designated medical practices that make a voluntary disclosure and register for payroll tax if necessary up to 30 June 2024.

After 30 June 2024, Medical practices must comply with payroll tax obligations.

To be eligible for the amnesty, you must apply to the Revenue Authority by 30 September 2023


There is an amnesty available on GP payments for medical practices that make a voluntary disclosure and register for payroll tax if necessary, prior to 30 June 2025.  

You must apply to the Revenue Authority by 29 September 2023.


The NSW Government announced that they will pause audits on medical centers for 12 months and they will consult with the GP groups. Any interest and penalties accrued will also be paused.


The Optical Superstore Case

In this case, The Optical Superstore owned and operated anoptical clinic. The contracts between the Optical Superstore (TOS) and optometrists – or the optometrists’ companies and trusts – were considered tobe relevant contracts for payroll tax purposes.

It was concluded that:

  • TOS was supplied with services of optometrists for or in relation to the performance of work.
  • The optometrists ensured attendance at agreed locations and times, and provided services to TOS customers.
  • The services of the optometrists were provided to TOS as well as to the patients.
  • The contracts were not tenancies because the optometrists did not have rights to exclusive occupancy, and were more consistent with a contracting arrangement.


The Thomas and Naaz Case

In this case, Thomas & Naaz operated three medical centers from which doctors treated patients. Thomas & Naaz held contracts with each of the doctors which allowed them to use the centre’s facilities as private practitioners.

Under the agreements, Thomas & Naaz provided rooms and shared administrative and support services to the doctors, in return for 30% ofthe Medicare benefits payable to the doctors for each patient treated at the centre. The employees of Thomas & Naaz were responsible for reconciling the incoming Medicare benefits and would then pay 70% of those amounts to the doctors.

It was concluded that the contracts between the Thomas and Naaz Pty Ltd, being the medical centers, and various doctors was a relevant contract for payroll tax purposes. The terms of the contract indicated the doctors agreed to:

  • provide services on a five day per week basis, including weekend rosters;
  • provide advance notice and obtain approval of vacations limited to four weeks per annum;
  • promote the interests of Thomas and Naaz, including not channelling patients away from its business;
  • abide by Thomas and Naaz’s operating protocols and complete all necessary documentation; and
  • comply with a restrictive covenant for two years after the doctor departs from the medical practice owned by Thomas and Naaz.

The terms of the agreement secured the provision of the services provided by the doctors to the patients of Thomas and Naaz’s medical centres. Where such services were a necessary part of Thomas and Naaz’s business, doctors provided their services to the medical centre as well as to patients.  Therefore, the services provided by the doctors were provided for or in relation to the performance of work.


Key takeaways

Medical centers using service entities to provide administrative and practice management services (such as billing, reception, and other shared services) for practitioners and health professionals must review their business structures to confirm whether payroll tax is payable.


Medical centers must carefully review and possibly update existing agreements and/or arrangements between service entities and practitioners to reduce the risk of exposure to payroll tax liabilities.


For medical practitioners in Queensland and South Australia, consider if you should register for the payroll tax amnesty. In Queensland, medical centers will need to have registered their interest before the 29 September 2023 deadline, and those based in South Australia by 30 September 2023.


Consider if you need to make a voluntary disclosure to the revenue authority to reduce penalties that could be applied if payroll tax has not been paid for a number of years. Eventually, the revenue authorities will contact all medical centres and request details of the arrangements with practitioners to confirm whether or not payroll tax is payable.


Maintain contemporaneous written records to substantiate the position you take on your payroll tax compliance, particularly with respect to the application of an exemption.


You can access the rulings below:


South Australia


New South Wales