Payroll tax crackdown on professional structures such as medical, healthcare and similar arrangements: part 5
We have previously issued four prior articles linked to this series focusing on the employee versus contractor distinction.
In our article ‘Employee or contractor? Payroll tax considerations: part 3’ dated 30 September 2022 (‘DBA payroll tax article: part 3’) we provided a top-level summary of how the payroll tax regime applies to the payment of wages and certain benefits with a focus on the ‘relevant contract’ provisions.
That article also covered recent cases on the relevant contract provisions such as Commissioner of State Revenue v The Optical Superstore Pty Ltd as Trustee for OS Management S Trust and Ors  VSCA 197 (TOS) and Thomas and Naaz Pty Ltd (ACN 101 491 703) v Chief Commissioner of State Revenue  NSWCATAP 220.
An appeal was subsequently lodged in the NSW Court of Appeal against the NSW Civil & Administrative Tribunal Appeal Panel with the taxpayer being held liable for payroll tax on the payment made by the clinic to doctors. See Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue  NSWCA 40 (Thomas and Naaz).
Since ‘DBA payroll tax article: part 3’ and the Thomas and Naaz decision there have been considerable developments around Australia on the application of the relevant contract provisions in a number of states or territories in relation to the payroll tax legislation on contractors, especially those involved in professional structures such as medical, healthcare and similar arrangements.
There is now a real urgency to ensure compliance with the ‘relevant contract’ provisions given Queensland, NSW, Victoria and South Australia governments have now issued rulings on the application of payroll tax to medical and similar practices. An article issued by Accountants Daily on 16 August 2023 reported:
The Royal Australian College of GPs said several regional practices had received retrospective payroll tax notices – including some for amounts over $600,000 – and with just 21 days to pay were now facing closure.[i]
Let’s recount what is a relevant contract
As noted in ‘DBA payroll tax article: part 3’:
Section 32 of Division 7, Part 3 of the Payroll Tax Act 2007 (Vic) (PTA) provides:
- In this Division, a relevant contract in relation to a financial year is a contract under which a person (the designated person) during that financial year, in the course of a business carried on by the designated person:
- Supplies to another person services for or in relation to the performance of work, or
- Has supplied to the designated person the services of persons for or in relation to the performance of work
Thus, a payment to a person is covered by the relevant contract provisions if paragraph (a) or (b) above are satisfied. Relevantly, the State Revenue Office of Victoria’s website states:
This covers most contractual arrangements between two persons each of whom supplies or receives such services in the course of a business.
Payments under these contracts are deemed to be wages (excluding GST). The principal who engages the contractor is deemed to be an employer who is liable for payroll tax on those wages.
The contractor provisions apply regardless of whether the contractor provides services via a company, trust, partnership or as a sole trader.
Section 35 of the PTA provides:
(1) …amounts paid or payable by an employer during a financial year for or in relation to the performance of work relating to a relevant contract … are taken to be wages paid or payable during that financial year.
This provision deems payments for relevant contracts to be wages for payroll tax purposes.
Fortunately, most Australian states and territories have harmonised many aspects of their payroll tax legislation. However, you still need to check the legislation in the appropriate jurisdiction to ensure you comply with the relevant rules, especially as each state and territory has established its own payroll tax rates, thresholds and registration criteria.
Given this article is to provide an overview on payroll tax, unless express reference to a particular jurisdiction is made, our comments refer to the Victorian payroll tax legislation.
The Commissioner of State Revenue of Queensland issued the public ruling Relevant Contracts – Medical Centres, PTAQ000.6.1 on 22 December 2022 (Qld P. Tax Ruling). The following useful extracts are copied from this ruling:
Application of relevant contract provisions to a medical centre
- A contract between an entity that conducts a medical centre and a practitioner is a relevant contract under s.13B if all the following apply:
(a) The practitioner carries on a business or practice of providing medical-related services to patients
(b) In the course of conducting its business, the medical centre:
(i) Provides members of the public with access to medical-related services
(ii) Engages a practitioner to supply services to the medical centre by serving patients on its behalf
(c) An exemption under s.13B(2) does not apply.
- If a medical centre engages a practitioner to practise from its medical centre or holds out to the public that it provides patients with access to medical services of a practitioner, it is likely the relevant contract provisions will apply to the contract with the practitioner unless an exception (i.e. exemption) applies.
The Chief Commissioner of State Revenue of New South Wales issued the public ruling Relevant Contracts – Medical Centres, PTA 041 on 11 August 2023 (NSW P. Tax Ruling).
The criteria for the application of relevant contract provisions to a medical centre are the same as what is found in the Qld P. Tax Ruling.
The Commissioner of State Revenue of Victoria issued the public ruling Relevant Contracts – Medical Centres, PTA-041 on 11 August 2023 (Vic P. Tax Ruling).
The section regarding the application of relevant contract provisions to a medical centre are also the same as what is found in the Qld P. Tax Ruling.
The Commissioner of State Taxation for South Australia issued the public ruling Relevant Contracts – Medical Centres, PTASA003 on 30 June 2023.
Like Victoria and New South Wales, the section regarding the application of relevant contract provisions is uniform with the Qld P. Tax Ruling.
What’s happening in other jurisdictions?
The other jurisdictions are understood to be monitoring developments and could follow suit with the jurisdictions above although the Accountants Daily publication, referred to above, noted:
Both South Australia and Queensland have announced amnesty periods while Western Australia has said it did not intend to change how its existing payroll tax provisions apply to general practice.
As noted, the payroll tax legislation around Australia is broadly harmonised and we recommend that where there is any risk that expert advice be obtained as soon as possible to consider the options.
As noted in the Accountants Daily publication, substantial retroactive assessments have started to issue. Therefore a proactive voluntary disclosure approach may be prudent to minimise further interest and other penalties being imposed.
While certain professional bodies may be seeking an amnesty or carve out, most state and territory governments are seeking to raise considerably more revenue to reduce their debt levels run up during the COVID-19 period. Thus, a change of law may be unlikely.
Can accountants advise on state/territory taxes
Registered tax agents and certain other advisers registered under the Tax Agents Services Act 2009 (Cth) (TASA) are authorised to provide tax advice relating to Commonwealth taxation law. However, TASA does not cover State or Territory laws such as stamp duty, land tax and payroll tax. Thus advisers who are not a qualified lawyer with a current practising certificate should be careful if providing such advice and make sure they state that they are no qualified to provide legal advice.
A review of contractor arrangements for every business, especially medical, healthcare and similar structures, is recommended to ensure they are supported by comprehensive written agreements and supporting legal opinion.
The recent rulings released by the Queensland, NSW, Victorian and South Australian revenue highlights the need for urgent review and appropriate corrective action to minimise risk and costs.
In addition to payroll tax, the following should also be considered:
- PAYG withholding tax
- Superannuation guarantee obligations especially given recent expansion in regards to contractors – refer: The application of SG to contractors clarified: part 4
- Workcover insurance
- Employee entitlements such as annual and long service leave, unfair dismissal, etc
- Liability issues
DBA Lawyers is well placed to advise and assist with the employee versus contractor distinction especially from the perspective of SG, PAYG, payroll tax and related issues. We have prepared a range of articles in this series to assist our clients to come to terms with these important issues.
- Employee or independent contractor – PAYG & SG: part 1
- Employee or contractor? High Court focus on contract v. multi-factors: part 2
- Employee or contractor? Payroll tax considerations: part 3
- The application of SG to contractors clarified: part 4
- Reconsidering incorporated contractors in an SG context
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).
Note: DBA Lawyers presents monthly online SMSF training. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.
For more information regarding how DBA Lawyers can assist, visit www.dbalawyers.com.au.