General practice owners have some housekeeping to do in light of the precedent set earlier this month in the Thomas and Naaz vs Commissioner of State Revenue decision.
As we reported on Friday, Dr Jawahar Thomas was found to owe the state nearly $800,000 in back payroll taxes, even though his western Sydney practices are structured in a very common way.
Many major GP practices, including the corporates, will need to overhaul how they pay their doctors by using a blind trust (accountants and lawyers are licensed to run such trusts) through which practices or companies running them can send the money generated by doctors working in their framework to be distributed between the doctors and practices.
The system would also need to manage other aspects of money flow like insurance payments.
But according to experts, that’s only one part of the problem that many practices are likely to face as a result of the decision.
As well as distancing the distribution of money flow to doctors working for a practice or a corporate, many are going to need to review their contracts with doctors so that the relationship more clearly falls outside of the definitions implied by the Dr Thomas ruling.
The first problem is complex but can probably eventually be put into a process and automated to some degree. Apparently some software vendors are already working on solving the problem.
The second issue, the issue of what a contract says in defining the relationship between a company providing doctors services and the doctors themselves, is historically very messy and might end up creating some seismic and unpredictable repercussions for the companies using doctors to deliver services.
The doctors working under some form of contract might be on the good side of any changes.
Contracts between doctors who work for practices or even corporates are on a spectrum that stretches from barely-there handshake agreements, to inappropriate and misdirected arrangements, to cobbled together agreements borrowed from other organisations without proper thinking, to reasonably detailed and specific contracts, to … well, maybe some form of contracts are acceptable in this new world.
But all will need to be looked at in through the lens of this new precedent, according David Dahm, principal of large doctor corporate advisory firm Health and Life.
Dahm is getting calls from everyone about the changes this week: practice owners, sole traders, some large practice owners, and even other accountants and lawyers.
His main message so far is don’t panic, and don’t change anything until you understand what you are doing.
He isn’t advising anyone in NSW to call up the tax office and register for payroll tax. Not yet anyway.
“There’s a fair bit of confusion out there at the moment, and lots of people are worried to the point of being hugely stressed, so I think it’s important that everyone knows that there is almost certainly some things they can do to meet the requirements set by this precedent, if they aren’t somehow already,” he told TMR.
“The main thing is take a deep breath, give yourself some time, call your accountant and do the basic checks for now against what we know.
“There is almost certainly a solution to this in the form of setting up a trust account with your lawyer or accountant, but most practices and businesses will also need to look at their doctor contracts in the context of the decision as well.
“I think a lot will need to review and change them.”
TMR called a few corporates to ask their position on the matter and it is apparent that many are very busy ascertaining their position.
We understand that at least one of the largest ones in the country is gearing up to change both its payment system to doctors, and its contracts in the very near term.
Dahm points out that whether you are a practice owner/operator or a “tenanted” sole trader doctor, the repercussions of the likely impending changes are equally interesting.
For corporates and the doctors they use, the contracts are likely to need to be significantly different.
For example, if you’re a corporate, some sort of restraint of trade and detailed privacy restrictions are usually mandatory. But Dahm thinks that clauses like this will be too indicative of a relationship that should be attracting payroll tax in the context of the new ruling.
What about the GP?
“If you work for a corporate, you may be about to get a much looser contract, something which puts more distance between you and your detailed working conditions and relationships with a corporate,” Dahm said.
“This could be a very welcome change for some GPs working in corporates.
“A lot of these corporate contracts have significant obligations tied to them, not dissimilar to the Dr Thomas case. These obligations will probably throw a cloud over these arrangements. Corporates might have to release their doctors from these obligations.
“GPs working for them may be free to work wherever they like and when.”
There are likely to be lots of other changes in the contracts as well if this relationship needs to meet stricter criteria, with a likely overall effect that the power in the relationship would shift back somewhat towards the working doctor.
Dahm cautions at the moment against too much speculation around what the changes will end up doing to the dynamic between doctors and their ultimate employers.
“This change is major, and it can be handled, but we have a fair way to go yet before really understand the full implications for both the owners and the doctors working for them,” he said.