Practice owners remain in a state of uncertainty over lingering questions regarding the application of payroll tax by state governments.
Payroll tax continues to be a significant concern for practice owners across Australia.
Although various state governments are actively working to clarify the application of payroll tax to general practices, there are still unresolved issues, leaving practice owners in a state of uncertainty.
The latest state government to step into the fray is New South Wales, which released legislation that takes immediate effect.
Unaddressed issues
The primary issues that remain unaddressed in the current payroll tax legislation and guidelines include:
- Flow of Patient Fees Process: The Thomas and Naaz case highlighted the importance of how patient fees are handled. Practitioners who received patient fees directly to their personal accounts were not included in payroll tax assessments. This suggests that practice owners should consider implementing a process where all patient fees are paid directly to practitioners, with service fees collected separately. Queensland is the only state that has provided clarity around this process.
- Influencing Bulk Billing Percentages: Another critical issue is the ability to influence bulk billing percentages without exercising administrative control over practitioners. Victoria, NSW, and SA have all announced changes for payroll tax depending on practices’ bulk billing percentages. Achieving a certain bulk billing percentage or influencing it could demonstrate administrative control by the practice over the practitioner, potentially classifying payments to practitioners as relevant contracts for payroll tax purposes.
- Return to Bulk Billing—Many GP practices moved away from bulk billing prior to last year’s long-awaited increase in Medicare rates, largely because they needed to ensure their practices were financially viable. Will these practices continue to be financially viable under current market conditions if they revert to mainly bulk billing services?
Where do state governments stand?
Despite a detailed ruling in Queensland, many practice owners remain confused about compliance requirements. The existing payroll tax amnesty, in place until 30 June 2025, provides some relief. Still, the upcoming state election could bring changes if the Liberal National Party, which has promised to scrap the tax for general practices, is elected.
Anxiety persists in Victoria and South Australia as legislation addressing potential exemptions for bulk billing arrangements has yet to be introduced.
New South Wales has taken a more definitive approach, incorporating payroll tax exemptions into its legislation and issuing a new Commissioners Practice Note (CPN036) to clarify the application of these exemptions. However, various issues have not been directly addressed in the legislation or the new Practice Note. Clarification would provide practice owners with a clear position on an accepted way forward and allow them to make informed decisions about how they wish to deal with payroll tax.
Practical implications
The bulk billing incentives introduced in November 2023 have not significantly alleviated the financial pressures on practitioners, who are increasingly moving towards private billing. This trend is expected to continue, making it harder for practices to meet the bulk billing targets required for payroll tax exemptions.
There has been much comment in the medical media regarding the potential claim for superannuation and other Commonwealth taxes to apply if payroll tax applies. This is unlikely to occur where arrangements have been properly documented.
Practice owners are advised to review and update their service agreements, patient forms, invoices and websites to reflect arrangements that comply with the latest rulings if that is the true nature of the arrangement. Trading as individuals rather than under a company or trust structure may also help mitigate payroll tax liabilities for practitioners.
Paul Copeland is a director of business advisory at William Buck and national lead for the firm’s health services group.
