24 September 2021
NSW GP payroll tax decision and federal vaccine tenders are ‘f&*ked’
On Wednesday I had an early morning call (early for me in lockdown is anything before 9am) from Dr Jawahar Thomas, whom I had previously talked to on a few occasions about an AI-based medical education learning system he was developing with a company we work closely with.
Except Dr Thomas didn’t want to talk about what seems like a really neat innovation for the MedEd world.
He was apoplectic and wanted to talk about the case he had just lost with the NSW Commissioner for Revenue, in which an apparently new interpretation of laws surrounding payroll tax had resulted in a retrospective finding against his company, which runs four GP practices in the west of Sydney, for nearly $800,000 in backpaid payroll tax.
As you are probably catching on, I’m not really a morning person.
I have followed a few of the recent cases – Super Optical in Victoria in particular – that point to an increasing trend for state governments to be auditing GPs with a view to finding that the relationship between the practice and the doctor is one that should attract payroll tax.
Trying to interpret state tax laws early in the morning (early for me) is not my thing.
What I did understand was that Dr Thomas is no dill. His setup wasn’t that abnormal and he had taken advice on making sure that his “tenanted” doctors, who were all sole traders, shouldn’t actually be attracting payroll tax. He had some contracts with his doctors that were based on someone else’s contracts, which is never really advisable, but small businesses do what they can to be efficient.
I needed help so I rang our money editor and resident tax expert, David Dahm.
David was initially suspicious that Dr Thomas had, like many GP practices do, DIYed things just a little too much – he had not crossed the t’s and dotted the lower-case i’s so to speak, especially on his contracts with doctors.
But within half an hour of starting to read the case, he rang back and indicated to me that something might seriously be wrong.
At about the one-and-a-half-hour mark, David rang again, after ringing the barrister in the case, who turns out to have been the barrister in the Super Optical case, and said simply: “F*ck.”
David isn’t the swearing type.
He spent much of Thursday rereading the case, talking to the lawyers and reviewing the major related cases. His conclusion was pretty chilling, and is contained in an exclusive news piece we did yesterday on the topic: the NSW Tribunal decision, for various reasons, potentially turns previous decisions on payroll on their head, and exposes nearly every GP practice and corporate in the country to having to pay payroll tax for all those GPs that work in their businesses, whether they are sole traders on well-constructed contracts or not.
Before I get to the real point of this op ed, one of the immediate issues I thought I should identify here is a thing called the “Naaah, that can’t be right” paradigm. It’s an age-old paradigm that unfortunately has found a brand-new life and vigour in our current age of rampant misinformation.
It goes simply that in this day and age, there is so much media flying around, especially on social media, that in order to get attention you need to pump stuff up, and as a result the general population will take account of this, and discount much of what they read – which is probably a good thing.
But when a story like this comes along, there is a very real chance that the powers that be – the colleges and the AMA – don’t take it seriously enough.
After all, it’s just one decision about one GP business in the west of Sydney – how big could it be, really?
And, if the NSW state government can levy payroll tax in this way, how come for the past 30 years they haven’t done it? This, by the way, is a really great question.
In any case, David, whether you even know him, like him or dislike him (he has some fans in the latter category, like most people do who like to ask hard questions publicly a lot), has some 30 years’ experience as a specialist accountant for doctors. And in those 30 years, this is one of the issues he has followed very closely.
There will be some other people that understand the detail and implications of this decision, I’m sure, and who have been all over the other related cases, but I can’t think of any.
David’s strong view is that we could easily keep on keeping on and not take this decision seriously enough and the repercussions down the track could be seismic.
This is a seemingly obscure decision in a seemingly lower-impact legal body – a state tribunal, not a court, and not either the Federal or High court. But for various reasons, many of which are explained in his article yesterday, this decision could easily be the beginning of the end for some GP practice businesses that aren’t set up the right way, through no fault of their own, or even their accountant’s or lawyer’s.
Think about Dr Thomas having to pay nearly $800,000 in payroll tax going back three years, and the fact that his setup, while not watertight by any means (David says nothing is watertight following this decision), is what most accountants and lawyers would deem as passable at least.
It simply (and disturbingly) means that any practice in the country that isn’t paying payroll tax on those doctors who they always thought of as some appropriately legally distanced and well-described form of contractor, or casual, now, technically may have to pay that tax.
Much worse, they may have to pay the past three to five years of it.
We haven’t established yet what the big corporates have been doing in the past few years around this issue.
Primary Health Care, before it was Healius and onsold to private equity, was caught out big time on tax issues around stuff like this.
If they aren’t paying payroll tax for most of the doctors who work within the bounds of their corporate framework, you can imagine that we might be looking at make-up payments in the realm of tens of millions of dollars.
But the worst impact, according to David, is going to be the middle ground practices of say 10 to 30 doctors. Such businesses don’t have access to working capital to fight the government in court or offset the loss, if the precedent sticks.
These are businesses that are already stressed significantly by covid. Copping a state government audit and a requirement for retrospective payments, like Dr Thomas has, could easily be catastrophic for GP practice businesses in the mid-size range.
Which brings me to the main point of this op ed.
What the flying expletive with several exclamation marks is the NSW government thinking here?
Answer: not much, it seems, except “oh, we could make some more money here, I think, for our masters”. And perhaps even, “yeah doctors, they’re richer than IT contractors, right? They can afford this, surely”.
The problem, of course, is that if this precedent is as bad as David is saying, and it spreads throughout the state governments the way covid has throughout our populations, the effect of such enforcement of a new interpretation of state-based payroll tax law would be to cripple our entire GP network.
A subsequent effect would obviously be on the quality of patient care, and probably in the stability of the entire commonwealth/state integrated healthcare system.
Did the brainiac in the NSW Office of State Revenue who came up with this audit and case give any thought to this when they decided that they’d try this cunning plan to raise more revenue for their state?
It doesn’t appear like they could have.
It points to a disturbing evolving trend for GPs, doctors, the healthcare system and of course, for both the federal and state governments. Increasingly, bureaucrats are making decisions based entirely on politics and/or revenue raising, in a vacuum. The broader implications for the healthcare ecosystem are outside that vacuum.
In the case of the Thomas decision and the potential for state governments to start ripping into the already stressed incomes of general practices across the country, one should ask: why do they see GP businesses suddenly as a source of additional payroll tax revenue when they haven’t for the past 30 years?
And, if they do, why don’t they ring up the Department of Health and have a quick chat to someone about what such a revenue-raising strategy might end up doing to the healthcare system if amortised across all the states?
Thinking in a vacuum like this can clearly end up being catastrophic and entirely counterproductive to the overall objectives of both the federal and state governments in terms of healthcare.
As things stands it’s unfolding like the butterfly effect.
A butterfly flaps its wings in the NSW Office of State Revenue, and two years later there is a Force 5 cyclone in the healthcare system, because no one bothered to give their decision appropriate broader context and thought for what it might mean to GPs and the healthcare system overall.
If you think about the problem GPs have with the PSR there are some important parallels in what is going on here.
The DoH has to have some form of compliance framework for GPs, and in the absence of GP organisations such as the RACGP or AMA stepping up and providing important help in the form of developing appropriate clinical and ethical guidelines (standards?) for doctors the government could use, the DoH has developed its own system. It turns out that this system is based on fear and has some pretty bad side effects for the morale of GPs, and the whole system. The PSR concept and its execution has been developed in its own vacuum.
The NSW Thomas decision is the PSR but on steroids, because it’s a decision made far away from anyone thinking about the healthcare system, but which has potential to put a wrecking ball through our entire network of GP practices in this country.
It’s much, much worse even than the PSR problem.
Before I go, here’s another example of the government making decisions in a vacuum, and or on the run, often with little forethought for what their wing flapping in one area of government can do sooner or later in another more important area.
It’s the decision by the DoH on September 14 to put out to tender additional services to expand our national covid vaccination rollout to allow businesses to team up with whomever, to administer vaccines on a commercial basis.
It sounds sensible in isolation perhaps, but if you step back from the tender, and understand that the DoH gave parties only 10 days to apply for this tender (if you do this, you usually know who you are going to give the tender to), but if you think about what effect it is likely to have on GP practices that have engaged so meaningfully in helping vaccinate the nation, at such low renumeration, to do the job, it starts to feel a little stupid.
Now the government is going to award contracts to anyone commercial who wants to vaccinate big business, for a profit. Businesses such as Bunnings and the CBA for commercial reasons are going to want this service to expedite their own commercial goals, so money is going to be made here.
Not money that many, if any, GPs will ever see, unfortunately.
While the government does need to look at every trick in the book to get as many people vaccinated in as short a time as feasible, one downstream effect of this tender, along with the rapid expansion of mass vaccination hubs in state governments, is less and less foot traffic for GPs based on vaccination.
Which might be fine, except GPs have bent over backwards to vaccinate their patients at virtually no profit or at a loss, as a form of public service really.
I wonder if the DoH couldn’t have given the GP network a little more thought when they were thinking of this new expansion of vaccination services, and done something creative with the GP sector that could have provided the sector with some return from the expansion – rather than let some smart entrepreneur or big contracting corporation reap all the monetary rewards here.
As things stand, it’s yet another small chip taken out of GP businesses, to add to the many other chips taken out during the pandemic.
Another decision taken largely in a vacuum that doesn’t consider the downstream effect on GPs, the healthcare system and its patients.