An email sent to bona fide service entities running medical centres for tenant GPs could fool some into signing up for payroll tax when they don’t need to.
As a part of Revenue NSW’s new paradigm for payroll tax for medical centres starting today – the “you do 80% bulk billing, we won’t hit you with payroll tax paradigm” – an email was sent yesterday to a large number of medical centre business owners which strongly implied that anyone getting the email would need to register for payroll tax immediately.
Alarmingly, the email explains that Revenue NSW has collaborated with the Australian Taxation Office to obtain information on the entity receiving the email – presumably directly from the entity’s income tax returns to the ATO – which has led Revenue NSW to determine the entity needs to register for payroll tax.
This is believed to be the first time that a state revenue office has written to medical or services businesses and admitted that they are now data matching directly with the ATO in order to identify businesses they think owe payroll tax.
The full email from Revenue NSW is reproduced below.
Dear XXXX
You are receiving this email because your business is registered with the ATO’s Australian Business Register (ABR) within the general practice medical services industry code. Revenue NSW can access the ABR database subject to terms and conditions.
New payroll tax rebate from 4 September 2024
Hello THE TRUSTEE FOR XXXXX MANAGEMENT TRUST,
We’re writing to update you about the impact of the 24 June 2024 change to the Payroll Tax Act 2007 (PTA) for general practitioners (GP) in medical centres.
The legislation change applies to you if you are a medical centre who engages GPs as contractors under the PTA’s division 7 part 3 – relevant contractor provisions.
Please read what we’ve explained below to assist you in correctly calculating your payroll tax.
Payments to general practitioner (GP) contractors may be subject to payroll tax
If your total wages bill, including taxable payments to GP contractors exceeds the annual $1.2 million threshold, or the monthly $98,360 threshold (for a 30 day month), then you must register for payroll tax.
Some contractor exemptions apply, view the medical services webpage for more information.
New payroll tax rebate from 4 September 2024
You may be eligible for a payroll tax rebate on payments made to GP contractors. To qualify:
- 80% of your GP services must be bulk billed, if you are located in Metropolitan Sydney or,
- 70% of your GP services must be bulk billed, if you are located in regional NSW.
Exemption for unpaid tax liabilities
Medical centres making payments to relevant contractor GPs will receive payroll tax relief for unpaid payroll tax liabilities incurred prior to 4 September 2024.
Next steps
- Check your total wages bill, including taxable payments to GP contractors.
- If you exceed the $1.2 million annual threshold, or the monthly $98,630 threshold (for a 30 day month), register for payroll tax.
- Review your bulk billing percentages to see if you qualify for the rebate.
For detailed information on the rebate including the eligibility criteria and definition of metro and regional NSW please visit the Revenue NSW website.
Need more information?
If you need help understanding how this change might affect your business, please contact our payroll tax team.
Sincerely,
Error! Filename not specified.
Scott Johnston
Chief Commissioner of State Revenue
Revenue NSW
Related
TMR now understands that despite the data matching with the ATO to identify businesses that would need to register, the email was sent to some business entities which are not medical centres but service entities running a clean landlord-tenant doctor trustee model.
This would imply that whatever data Revenue NSW obtained from the ATO on these businesses identifying them as owing payroll tax, is in some way inaccurate.
The distinction between the two models of businesses being run for the services of GPs across the country continues to be unclear with a lot of business entity owners and, it looks like, in some respects, now potentially, tax authorities (see below).
Advisory principal and payroll tax commentator David Dahm told The Medical Republic that the letter would be confusing to most people who get it, and potentially even misleading if you were running a true service entity, because it fails to make an up-front distinction between an administrative entity running a tenant-landlord model and a medical practice running contractors.
“You are either a properly run tenant-landlord administrative set-up, or you aren’t and if Revenue NSW is going to send a letter like this to everyone, they should be making that distinction very clear up front – and they aren’t,” Mr Dahm said.
“An administrative entity is simply there to provide space and services and has no oversight or control of a doctor working at one of their facilities.
“The doctors working at such a facility are tenants, not contractors or employees. But people keep confusing the situation and the terminology and calling doctors working at centres, contractors. It would be easier if everyone started using the terminology tenant or contractor/employee.”
Mr Dahm said that even some smart operators of services entities could be trapped into registering for payroll tax based on the wording of the email sent yesterday.
“The thing is, if you are running a tenant-doctor model, you should not have been sent this email,” Dahm said.
“Anyone who gets it who is running a proper tenant service entity should be able to ignore it, as they are not captured by any of the conditions that Revenue NSW has so far outlined as being eligible to pay payroll tax on doctors working at a centre, but it’s a pretty confusing and scary letter for anyone to get.
“Just ignoring it, which you should be able to do, would feel counterintuitive and potentially dangerous to anyone who receives it, and there’s the problem.”
The key to determining if you should or should not ignore the email is not in the email itself but it is in the first link provided in the email on the PTA’s division 7 part 3 – relevant contractor provisions.
Like the ATO rules and tests around personal services income (PSI) an initial reading of this part of the payroll tax legislation is pretty confusing.
Mr Dahm advises that if you don’t understand it then get in contact immediately with your accountant and lawyer.
But Mr Dahm says the summary of this section of the NSW payroll tax legislation would be that any doctor you have operating at your centre who has a form of contract that in any way indicates they are providing services to the centre, would mean the contract is deemed a “relevant contract” for payroll tax purposes, and that would mean that the centre was probably up for payroll tax.
“It unfortunately remains a major confusion with a lot of centre owners, in part because there is a lot of case law at the federal level you need to understand. You need to understand ATO rulings, some recent, and then you need to overlay what each state revenue office is now demanding, and each one is demanding something different.
“It’s a mess, now being made a lot messier by state politics which seems to be driving rushed and ill-thought-out legislation around general practices and payroll tax.
“Everyone now needs good professional advice, because you now have to understand what each state is asking, mashed into a lot of existing and new case law at the federal level, ATO rulings and even new Fair Work rulings.”
