As we’ve been warning for ages, there are some seriously taxing times coming for contractors who don’t look like contractors.
In a seemingly innocuous 1 July new financial year update yesterday morning, the RACGP’s news service dropped a quiet little bombshell on its members.
It admitted for the very first time (as far as we can find) that if a member is working as a contractor they need to be invoicing using their own ABN, not the ABN of their practice.
Under the heading Provider Digital Access account requirements, the story said (our emphasis):
“Where independent contractor doctors work at a practice, each doctor should have their own PRODA account and issue invoices with their own ABN (not the practice’s). If the doctor uses the practice’s PRODA account, that doctor may not be viewed as an independent contractor.”
We asked the college where this advice came from, whether it had given this advice to members before, and if not, why 1 July was the first time it was warning members about what is possibly the biggest issue in decades for practices and members who purport to be contractors.
It said: “The information featured in the newsGP article concerning Provider Digital Access account requirements was sourced from several sites including the HWL Ebsworth page.
“The college has been aware of changes concerning PRODA for many months and yesterday’s article was another reminder to members of the 1 July changes coming into effect.
“NewsGP previously featured an article concerning changes to digital claiming and the move to webservices in February this year.”
That article, which doesn’t come directly from college sources but is a sponsored piece by Services Australia, is also the closest we could find – but it’s about renewing PKI certificates and doesn’t anywhere mention ABNs or the risk to individual doctors that they won’t look enough like a contractor for the ATO’s purposes if they use the practice’s ABN.
The problem is a big one for doctors who are doing this, and for practices that are paying their so-called contractors via their practice ABN.
In a few recent webinars on the topic it has been estimated that up to 70% of doctors and practices were not operating in this manner.
The Medical Republic reported on the issue some months ago and was immediately inundated by mail from various parties suggesting that we were scaring the horses unnecessarily. One critic labelled us the “Chicken Little” of the media.
But the problem has been apparent for some time now, most especially following several very public state revenue office (SRO) payroll tax cases in which state governments have made it very clear that practices paying their so-called contractors with the practice account was an indication that their contractors were not actually contractors.
To send a note to members for the first time on the problem on 1 July, one day after the end of the 2022 financial year, feels pretty odd.
For starters, 1 July is actually irrelevant to the issue. The college has linked the idea that you have to have your own ABN and invoice with it to the need to have a new PRODA account. But you’ve needed your own ABN and to invoice through it almost forever. SROs are going back up to eight years in their examination of practices under audit, so doctors and practices needed to be working on a fix for this problem way before yesterday. At the very least they should have started as soon as some of the state revenue cases started to highlight the key elements of why they were ruling that practices weren’t actually set up in contractor relationships.
AMA NSW held a webinar in February where the issue was highlighted as a massive potential issue for practices and their contractors.
The Medical Republic also held an extensive webinar on the topic, which you can watch here – it covers not just payroll tax, but also income tax, which could also loom as a problem for you if the ATO decides you’re not actually a contractor operating as a business but effectively an employee, then your tax returns might be all wrong (more on that below).
That the RACGP is only now acknowledging the problem, and that it is doing it in such a matter-of-fact manner, belies the tsunami of emerging new financial challenges that their members face and practices face.
And unfortunately it appears to be getting worse quickly.
There is rumour of a new case in Victoria where that SRO has found that all the contractors of a practice over an eight-year period are not actually contractors, and has issued a demand for back payroll tax well over $3m.
A big new worry in this case appears to be that the SRO actually interviewed most of the practice doctors without alerting the practice – something they probably have a right to do, if indeed the practice is holding out that the doctors “renting” their space are contractors.
The SRO apparently found that one reason none of the so-called contractors actually were contractors was that none of them had a website representing their own business, whereas the practice had a website which featured all doctors.
If this finding holds, then it’s another seismic change for the profession (here we go Chicken Littling again), as it means that not only should contractor doctors have their own PRODA account linked to their own ABN, and ideally a separate bank account for that ABN, through which they invoice – but they also should each have a website where they are offering their services to the public.
This would be a huge change in focus in GP marketing, as you might end up with contractor GPs advertising their services directly and through that pointing their clients to each of the practices where they operate for an appointment. Presumably this could be done with some reshuffling of how the various booking engines work (i.e., instead of pointing to practices they might need to start pointing to individual doctor contractors, who then pipe the booking to the relevant practices they are working for).
Another big potential issue for contactors from this ruling might be that if you don’t have a website, and therefore aren’t properly holding yourself out to be a business, then you aren’t a contractor in the eyes of the ATO.
If the ATO started down this track, and there is reason to believe it will in the near term with the sort of new data matching capability it has, then individual doctor ATO returns would start failing spectacularly en masse. For starters, if you aren’t a contractor business then many of your business deductions would become invalid, and so would your GST claims. Essentially, years’ worth of your tax returns as contractors would all be wrong and likely need redoing. For how long? Well, the ATO can go back at least seven years if it wants to get narky.
The problem is likely to be compounded for most practices and doctors because the major patient management systems are not configured to manage these more complex payment arrangements between practices and contractors. Some are only starting to think about it now, but the new SRO interpretations makes things a lot more complex which will mean a lot more investment in development for some of the software providers.
If the Victorian case is real and the ruling is held, then it’s pretty black and white.
We will have a detailed update on that case in the coming week so stay tuned.