8 October 2021

State’s ultimatum on payroll tax

KnowCents Tax

Pay your payroll tax now to avoid penalties, NSW general practices have been warned.

The state’s revenue office state has confirmed that  practices should brace themselves for random audits which could see their businesses liable for up to five years’ worth of overdue payroll tax.

A Revenue NSW representative has told TMR  that audits on medical practices are ongoing, and that arrangements between doctor contractors and practices are “potentially” liable to the same payroll taxes as employees, based on two recent test cases, Optical Superstores and Thomas and Naaz.

“Recent decisions by judicial bodies around Australia, including Optical Superstores in Victoria and Thomas and Naaz in NSW, have established that arrangements between a healthcare business and healthcare practitioners who provide services are potentially relevant contracts within the meaning of the Payroll Tax Act 2007,” they said.

TMR has been told the investigation into “several healthcare businesses to ensure compliance with NSW payroll tax laws” is part of Revenue NSW’s ongoing compliance audit program.

The state is offering a reprieve in punitive fees for any practice that reviews its own payroll tax liabilities, before the state debt collectors come knocking.

“Taxpayers who voluntarily disclose liabilities to Revenue NSW before an audit is initiated will have penalty tax reduced to nil,” the Revenue NSW representative said.

Rates and thresholds for payroll tax vary across states. In NSW the threshold this financial year is $1.2 million per year, and the rate is 4.85%. The Victorian rate is the same, but the threshold is $700,000. South Australia’s is $1.5 million and the rate is variable.

TMR understands it’s at the discretion of Revenue NSW to determine the timeframe a payroll tax arrears extends, up to a maximum of five years. But the individual circumstances of each business would be taken into account. 

“In circumstances where tax has not been paid through a misunderstanding of the law, Revenue NSW will consider waiving penalty tax and interest and will continue to offer taxpayers more time to pay to help businesses to continue to operate normally,” said the representative.

Revenue NSW’s careful wording – “potentially relevant contracts within the meaning of the Payroll Tax Act” – is not a blanket statement that every practice using contractor arrangements would be found to be employing doctors for the purposes of the tax.

It is also not an invitation to revise those arrangements. As we reported yesterday, TMR understands that practices that do so now in the wake of these precedents risk being seen as engaging in tax avoidance.

And it is not clear that a fix could be readily made, in any case. While it was the banking arrangements and the flow of payments in the Thomas and Naaz case that allowed the state to argue the relationship was one of employment, TMR has been told that Revenue NSW could have pursued other angles to achieve the same determination.

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