National attention on this emerging problem just risks exposing more practices to audits. Don’t panic, but do get advice.
The clamour around payroll tax being applied to medical practices has achieved national mainstream news coverage – and that sounds like a good thing, but it’s not.
The Queensland Revenue Office’s Ruling, titled Public Ruling PTAQ000.6.1 Relevant contracts – medical centres, which went into effect in December, has generated many incorrect media statements and misconceptions, which I’m going to debunk.
Let me start with a disclaimer: I’m a chartered accountant experienced in advising medical sector businesses. I’m not a lawyer, though these opinions have been reviewed by lawyers for legal accuracy. I am not providing legal advice. I am commenting on the impact of the payroll tax issue and how it may affect your practice.
I want to leave you with these three crucial insights, whether you are a doctor, allied health professional, or practice owner:
- The national payroll tax media frenzy is undeniably doing more harm than good.
- The tax ruling is not legislation or case law, but a binding opinion.
- Doing nothing is not an option.
1) Media coverage is not helping, nor is lobbying
The national mainstream media has picked up on this story and is reporting that payroll tax is killing bulk billing and forcing ordinary Australians to the emergency department. It makes for a great headline, but it is also bad for business.
Wednesday AM update: Case in point, the RACGP bought this full-page ad in Nine and News Corp newspapers today.
It will cause unnecessary workforce volatility and uncertainty. How many tenant-doctors do you think want to work at a practice that may have toxic tax working arrangements, which may implicate them in a much broader personal tax audit?
Doctors can smell a practice owner’s fear when they feel they are not in control. It is far worse when it may be based on a giant misunderstanding of the law fuelled by the Queensland payroll tax ruling.
My advice now is to immediately educate yourself (do not leave it to others) and simply fix up your practice, now.
Publicly lobbying for a tax break, as the AMA and RACGP have done, looks bad unless everyone gets one. I would have recommended using a more discreet and diplomatic approach.
I have extended an open invitation to those and other professional bodies to have a chat on these finer points. I have spoken with the college’s vice president Dr Bruce Willett and we maintain a direct dialogue. The RACGP is also maintaining an active dialogue with experts in the field.
There is a lot of well intended public and private lobbying activity with the goal of obtaining an exemption. But I do not believe that there is a magic pen with an ironclad government guarantee to protect you from a multi-regulatory audit coming into force any time soon.
If the medical industry is lobbying for a payroll tax change, why not also ask to be exempted from income tax PAYG, super, WorkCover, Fair Work, and medical negligence? The public is already questioning the overall fairness of the industry’s blanket-exemption request and the potential double standards.
Consumer medical, health goods and services being GST-exempt or claiming a Public Benefit Institution (PBI) tax-exempt status, like a not-for-profit public hospital, are not the same as asking for a personal or business tax break.
It is definitely not a precedent. They are totally different taxation regimes with an entirely different legislative purpose incongruent with any payroll tax exemption being sought.
I know payroll tax seems unfair but this is how it works. It does not always appear logical for good reason.
Killing bulk billing will make things worse for your practice
This is like killing Bambi. Expect some opposition.
After many decades of warnings, I never would have guessed that payroll tax would be screened on national TV as the primary reason (among many others) for GP to cease bulk billing.
The need to stop bulk billing may represent a golden opportunity. But think again if you are using payroll tax as an excuse.
Suddenly increasing your fees will only increase your payroll tax bill and kill your patient base. It does not make dollars or sense.
Furthermore every practice or practitioner who publicly makes a stand may find they have accidentally put their hand up for a payroll tax investigation.
Where medical centres collect patient fees then deducted a proportion for rooms, staff and facilities before distributing the balance to GPs, this strategy will technically not work if you are trying to get out of payroll tax.
In this statement RACGP president Dr Nicole Higgins says: “The tax will be paid on total billings generated by a practice from the current financial year 2021-22.” That is not quite right: payroll tax is not levied on a doctor’s gross patient receipts, but the net amount paid to the doctor after management fees are deducted from the doctor’s gross patient billings.
The bottom line is that it would be unhelpful to pass on this tax to patients. It does not solve your problem. There are too many regulators to fight, and it will take many years, even if they are interested in changing the laws.
On a positive note the QRO ruling provided us with a hint. As stated earlier, start looking at your practice’s name (does it need to change to reflect what you actually do for doctors?) and how you market it and your tenant doctors.
Furthermore, reconfirm your Tenancy Contracts and practice arrangements.
This well-intended scare campaign may make you a tax audit target
When it comes to tax offices, do not poke the bear. From a distance they may at first appear friendly. If you get too close do not be surprised if they have a go at you.
Early in 2022 the AMA’s and RACGP’s medical specialist solicitors and accountants made direct comments to the payroll tax commissioner and the media as to how widespread the problem is, saying more than 7400 practices could be liable – effectively throwing everyone under the bus.
In fact, each practice will be judged on their particular arrangements, and not on everyone else’s.
These public statements have only piqued interest and increased medical practice audit requests.
Before those remarks were made, I had declined an interview specifically about the true scale of the problem, for this very reason. It was in my opinion not appropriate nor wise to speculate as to what percentage of practices would be affected and cause further stress to the sector.
Other accounting firms were since interviewed and have readily provided public statements relating to the specific percentage, which concluded in not only attracting attention to themselves but also to the entire industry.
It was the biggest free kick I have seen any tax office regulator receive, justifying the increase in audit activity throughout the tax agencies across the country. Comments from peak bodies seem to have added jet fuel to the regulator’s investigations. I hope that I am wrong here but it would be rational to expect the authorities to double down on any future audit activity. That is how the tax office works. If the ordinary person on the street is talking about it, they have a duty to investigate.
By making your problem publicly known without first finding a solution, it would be reasonable to assume that you are making yourself a target.
Politicians will always put voters and their Treasury first.
Confessing your sins to a regulator in the hope they will be gentler on you because you are a “good and ethical doctor” is simply not a good strategy nor legal defence. It is not hard to get wrong – we have seen the big law and accounting firms mistakenly misrepresent their clients to the payroll tax office. You only get one chance.
And do not expect helpful tips from the agencies. That’s not how it works. They are just doing their job.
You are giving them evidence to prosecute your practice and others if you have not got your arrangements and facts right. They have no choice but to investigate if anything you say, which cannot be unsaid, leads them to believe you may owe them money.
So get the right advice
Queensland and NSW payroll tax representatives themselves have made the point that practices should seek experienced medical legal and accounting advice before defending an audit. Do not DIY. It is a complex issue.
If you do not want to risk losing your family home, it may not be enough to solely rely on your humble and loyal suburban accountant. Just like in medicine, it is a specialist area. Everyone should be seeking specialist advice, and the buck stops with you whether you are a practice owner or doctor.
Start with an adviser who has been successful at defending a recent medical payroll tax audit. Make sure they understand your practice and industry and can explain it back to you.
Paying a lot of money does not guarantee success – just ask Healius – and it is affordable to remain compliant.
2) It’s a ruling, not law
Don’t panic.
Our client GP medical practices have recently been granted payroll tax exemptions post the unprecedented 2022 NSW tribunal case known as Thomas and Naaz. Having lost his tribunal appeal in September, Dr Thomas is making an application to the Supreme Court.
Furthermore, we have secured over 34 payroll tax exemptions using the same leading barrister (also for Thomas and Naaz) in the leading Court case: (The Optical Superstore Pty Ltd & Ors v Commissioner of State (Review and Regulation) (Corrected) [2018] VCAT 169 (9 March 2018) decision.
The big hint for the budding lawyers and accountants among us, if you want to be granted an extension or win a High Court case, is that it is all about optics. Both the NSW and Queensland commissioners have made a subtle and underappreciated reference to this point.
This stems back to the 2001 Vabu High Court courier negligence decision.
It is all about consistently proving what you say happens each day at your practice and ensuring everyone is on the same page.
3) Take a breath, stop making excuses, and get it right
While it’s understandable that GP professional bodies and representatives are trying to get an umbrella exemption for the entire sector, this is your personal tax problem and not theirs.
There was a time when the ATO under the federal Treasurer Paul Keating went after 65 judges for outstanding tax returns. Embarrassingly Keating was also pinged himself.
Unfortunately his excuse was “just too busy”. This did not cut it with the ATO.
It won’t work for you either. Nor will the excuse that you are saving lives.
Some practices have been investing for years in getting it right – the plea for an exemption may offend them. The QRO payroll tax ruling vindicates their investment. It has not been in vain. For recruitment and retention purposes, their practices are more attractive to doctors.
Doctors want to be supported or outsource to safe clinical and business systems.
Why should complying practices be penalised for doing the right thing the right way?
The bottom line is, a practice is not liable for payroll tax if they can carefully follow and prove they have complied with the law. Nobody is or should expect to be above the law.
The overwhelming problem seems to be the narrow understanding and interpretation of the rules and legislation. This also extends to some advisers, which may be fuelling the unwarranted concern and subsequent national media headlines.
Making time to upskill your knowledge base could be a life-changing decision.
For many practices the payroll tax ruling is an avoidable dog fight. Who knows whether the QRO is searching for the next poster-child medical centre payroll tax case in Australia?
With the correct advice, and after some housekeeping/renovations, if you do it properly without cutting corners, you will find the silver lining.
The eventual conclusion of your efforts in reconfirming your structures and protocols, will result in an individualisedtenant-doctor recruitment and retention competitive advantage.
Your business will become considerably more viable, improving not only your succession planning but also the most important factor: patient outcomes.
Avoid a MAD situation
One thing you should not waste time on, is preparing to sue your practice or providers or report them to regulators without getting your facts right.
We have received reports that some doctors are seeking to pursue a claim for underpayment of super and leave entitlements of the medical practice.
This is mutually assured destruction.
Nobody is going to win if you both start lawyering up against each other. It needs a constructive solution, education and well thought out timely execution.
The ATO could easily turn around and deny a tenant doctor’s legitimate tax deductions and GST refunds that the doctors have claimed, including clawing back any legitimate income splitting tax breaks to spouses. It could claim the doctor has falsely claimed the practice was not a “genuine business” for many years. It can go back up to five years issuing heavy penalties. This approach is guaranteed to end badly for everyone.
Everyone is better off working with each other and their advisers to resolve any concerns.
Start to educate yourself, do not leave it up to others.
Remember context is king. A lot of well-intentioned mainstream and social media advice is piecemeal and may cause undue anxiety.
With a bit of housekeeping or maybe a small makeover, nobody will lose their local GP, have significant medical bills or find themselves stuck in overcrowded emergency departments.
Be careful about listening to the advice you receive.Get a second opinion.I do them at no cost or obligation.
Complying with the law is not a choice. It is mandatory. Even if you try and sell your practice you cannot easily carve out any past problems. Expect the price of your practice to significantly fall and no one but you will be expected to foot the bill.
If you feel that, like Paul Keating, you do not have the time, or you find this all too stressful, consider not being self-employed. Become someone else’s employee and answer directly to them as they instruct you to do. Expect your employer to always be looking over your shoulder and expect to be paid less. In the end, it is a choice.
In forthcoming pieces I will go into more technical detail and show you how to self-assess and navigate towards compliance.
The disclaimer again: The author is not a lawyer and this advice is general in nature. Please obtain specialised legal and accounting advice before changing anything.
This article is an edited version of an article published on the Health And Life website. The original version of this article can be found HERE
