The big corporates are on notice, which affects in turn a lot of GPs and their personal income tax.
The citing of a specific Federal Court case win by Healius in this week’s payroll tax ruling by the Queensland State Revenue Office has put every corporate GP provider in the state on notice that they should be paying payroll tax.
If the major corporates are forced to the table in Queensland, there would be little to stop other states taking the same position.
The implications of the ruling for eight of our largest corporates was the subject of a impromptu board meeting of the Primary Care Business Council yesterday.
Asked to comment on the ruling, PCBC executive director Jeremy Stone, who was until recently the CEO of corporate Better Health, said the council “could not comment on the individual taxation circumstance of any of our individual members”.
However, he did say that “the manner in which PCBC members structure payment arrangements is broadly in line with the market at large”.
On an Australian GP Alliance post addressing the Queensland payroll tax situation recently, a senior Queensland AMA GP said the AMA believed over 80% of practices in that state might not be compliant with the ruling.
In a AMA webinar on the topic last year a similar figure was quoted by a senior AMA representative.
“Any increased/new/additional cost burden applied to medical centre operators (including PCBC members) presents an existential threat to individual and collective practice viability,” Stone told TMR earlier today.
Stone is also quoted in Australian newspaper as saying that 40% of the GP network was already running at a loss and that the sector’s sustainability needed to be addressed before the government started looking at systemic reforms to Medicare.
“We’re at breaking point,” he said.
State revenue offices have said that payroll tax determinations are based on the entirety of a business’s situation, and nearly every practice status has to be determined on a case by case basis.
This stance by SROs has been just about the only relieving factor for many practices in the past year or so.
The variety of structures created in the alternate histories of set up and rolling governance of small to medium practices means that SROs should have to look at a wide range of factors to determine payroll tax status case by case.
But this may now not apply so much with the big corporates if you follow the new Queensland ruling.
In referencing examples of structures which would likely mean a practice or business was liable for payroll tax, the Queensland SRO ruling says that:
Under a relevant contract, the medical centre and each practitioner engaged by the medical centre conducts separate but related businesses (see, for example, Commissioner of Taxation v Healius Ltd [2020] FCAFC 173 at 32).
In finding for Healius in this case Commissioner of Taxation v Healius the judge determined that medical practitioners:
- agreed to render medical services for five years exclusively from Healius’s specified centres;
- would be subject to a restraint of trade and must not render medical services at any place within 7km from their old place of work or the centre;
- agreed to certain work schedules set by the Healius, including minimum hour requirements and shift requirements; and,
- “must use their best endeavours to promote the interests and welfare of the ‘practice’ and must observe all lawful directions of Healius concerning the operation or management of the centre and the business conducted from the centre”.
Further, the judge specifically said that the evidence showed that Healius – now known as ForHealth – was in the business of operating medical centres in a manner that included the activities of causing, ensuring and facilitating the provision of medical services directly to the public.
Notably the judge specifically pointed out that Healius was not just a provider of a services to general practitioners but of services directly to the public.
This interpretation of structure and offer of servcices, in this case by a Federal Court judge, is precisely what most state revenue offices are targeting in terms of payroll tax compliance.
If Queensland does insist on ForHealth paying payroll tax, it is likely other states will follow suit in demanding ForHealth comply.
And with that it’s feasible that a lot of the corporates with similar histories and structures would need to follow.
One likely reason Stone is not prepared to put out a broad position of the Council on the ruling is that each of the major corporates will have different setups. While ForHealth is de facto being declared non-compliant, at least as it existed in 2020 as Healius, other corporates may have different set ups which are more compliant.
A huge issue for general practice if the state revenue offices do go after the major corporates in the near term will be that up to 30% of GPs in the country, who have been classed as contractors (or tenants using the services of a service entity), will now be technically classified by the SROs as employees.
That would in turn mean that a third of the entire GP workforce would suddenly have serious personal income tax issues with the Australian Taxation Office.
If they have been employees working for corporates and not contractors then each year they’ve been misclassified their personal income tax returns will be wrong and will be need to be audited.
As contractors they will have been classifying themselves as businesses under the personal services income rules of the ATO and making business and GST deductions as a result, which would technically now all be invalid.
And while the Queensland SRO has made a commitment to not auditing practices prior to 2021, the ATO has not given any such commitment, nor have any of the other state revenue offices outside of Queensland.
HealthAndLife principal David Dahm, a longtime commentator on payroll tax issues for medical practices, told TMR that the 2020 Healius case seemed fairly black and white and that in all likelihood it would put ForHealth in the firing line to pay payroll tax on most of its contractors, if it isn’t already.
“The judge in that case hinged the case of Healius [on its] being a medical centre not a service centre. It’s going to be pretty hard for [ForHealth] to remediate that problem given it’s a key part of a Federal Court ruling”.
Healius was sold to local private equity firm BGH capital for $483 million in late November 2020.
It is not known whether the potential liability of the 2020 tax case was revealed in the due diligence conducted by BGH, but if it wasn’t, and if ForHealth is forced to the table on payroll tax across the country, undoubtably the valuation of the group would be significantly affected.
