7 October 2021

Payroll tax the last straw for GP practice owners

Finance KnowCents Tax

This state government revenue grab could ensure that only corporates find it worthwhile to run these businesses.

If state and territory governments impose payroll tax liability based on GP practices engaging contractors, there will be no incentive for doctors to become practice owners, says a GP advocate and practice owner.

Dr Chris Irwin, the president of the Australian Society of General Practice and a GP practice owner in Victoria, says recent audits by Victorian and NSW state revenue authorities into general practices’ payroll tax liabilities were “shortsighted, unfair and haphazardly implemented”. 

But there has been relative silence on the issue from the RACGP so far, despite ASGP imploring them to issue an official statement.

Meanwhile, the AMA in NSW is in negotiations with the state government to end to the random auditing of GP businesses.

In a media release this week, ASGP called on the RACGP and AMA to advocate on the matter of state and territory governments being able to issue payroll tax arrears to general practices.

It comes after a decision last month in the NSW Civil and Administrative Tribunal (Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue) in which a Western Sydney doctor and practice owner was found to owe the state about $800,000 in retrospective payroll taxes.

While medical practices are no strangers to paying payroll tax for their employed staff – receptionists, nurses, cleaners – traditionally doctors were considered exempt if they were engaged as independent contractors at a medical centre.

“The effect of these changes means it would be nonsensical, as a GP, to be involved in the ownership or running of a clinic,” Dr Irwin said in a video message for GPs.

If payroll tax were to apply to each GP contractor arrangement for practices, doctors would stand to make more money by simply being a contractor, as opposed to running a medical business.

“This puts the final nail in the coffin for GP-owned general practice, and pushes us more towards corporatisation of medicine in Australia,” Dr Irwin said.

Without GP owners in Australia’s primary care space, patients can expect a future reality where GPs are less involved in how clinics operate and what their values are, Dr Irwin said.

In the worst-case scenario, he predicted, general practices would be reduced to loss-leading operations run as referral mills for their owners’ more lucrative pathology and radiology services.

TMR contacted the RACGP to ask whether it thought GPs should be worried about the future viability of general practices if state and territory governments decide to continue the retrospective collection of payroll tax.

The college said while it was aware of the recent case by Revenue NSW, it was unable to comment on legal matters.

The existing advice in the RACGP’s General Practice Business Toolkit, tells GP practice owners that: “Independent contractors are generally not entitled to employee benefits such as paid leave, and are responsible for their own superannuation and tax obligations.”

But the recent actions by Revenue NSW mean that taking this advice would neither guarantee an exemption from payroll tax liability nor safeguard a practice’s bottom line.

Dr Danielle McMullen, president of the AMA NSW, said they had been actively following this issue of payroll tax for a number of months.

“We have been actively working on this issue and we have raised our concerns with Revenue NSW,” she told TMR.

As discussions continue with the NSW government, the AMA is encouraging all its members to seek accounting and legal advice about their existing practice arrangements.

But Dr McMullen said the timing of the random audits couldn’t come at a worse time for general practice, which have been at the forefront of both the covid pandemic and the vaccination rollout.

“We are concerned the fallout could be very detrimental for many GPs,” she said.

TMR understands that a serious appeal to the state governments to call off their respective revenue departments may be the only way to ensure the profession won’t continue to be subject to retrospective tax bills in the future.

The most recent case in NSW rested on the assertion that GP income was deemed liable for payroll tax because of the way that money flowed between the practice and contractor accounts. But TMR has been told that Revenue NSW could have pursued a number of other angles to ultimately achieve the same determination. 

For example, even if each doctor operated their own individual payment system in their consulting room, Revenue NSW might have instead rested its case on the hours doctors worked at the premises, the rooms they operated from and other evidence of practice-doctor collaboration.

And with no clear guidance on what relationships may or may not be considered eligible for payroll tax, doctors who restructure their practice could even come under the eye of auditors for instigating a tax avoidance program in their business.

Ultimately, practice owners have been left guessing what arrangements require the payment of payroll tax. But ASGP said the opaque nature of these arrangements by state and territory revenue bodies shouldn’t be condoned by the profession.

Dr Irwin said it was time for any organisations that stood up for GPs, including the RACGP and AMA, to ensure decisions on payroll tax wouldn’t ruin the viability of the profession.

“It’s of course the worst for our GP colleagues that are in practice ownership,” Dr Irwin said.

“The most important of all is that this harms our patients, which is why we’re in this to begin with.”

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A Contractor GP
A Contractor GP
7 months 11 days ago
As a “GP contractor” I assumed my independence as a GP contracting the administrative services of a practice to support the practice owner’s position that I am not on their payroll. I have balked at attempts by GP practices I have worked for in the past to expand my scope of practice into fringe services and potentially unethical billing arrangements. I defended my independence in determining my own hours and professionalism of practice, and have had the ability to terminate a contracting arrangement when it started to move into an employer-employee arrangement. The problem lies in those practices that demand… Read more »
Partha Modak
Partha Modak
7 months 13 days ago
Perhaps it’s not all bad for practices to have to pay payroll tax. We as GPs have been too long reliant on Medicare bulk bill and many amongst us don’t see General Practice as a business rather a front of doing good to their patients. Whilst it’s all good to be sympathetic to patients it is shortsighted to forget in the cours e that the business has to be viable first to provide the structure for all their good deeds. With businesses having to pay payroll taxes owners will have no other option but to reduce the percentage the GPs… Read more »