PAYROLL TAX: AN UPDATE FOR PRACTICES

The NSW Court of Appeal dismissed the application by Thomas and Naaz to appeal the tribunal decision. What are the implications for medical practices?

RECENT PAYROLL TAX developments have made it clear that a practitioner who has a contract with a medical practice may be deemed to have a ‘relevant contract’ with the medical practice, and money remitted from the practice to the practitioner may qualify as ‘wages’ for payroll tax purposes. A medical practice will be liable for payroll tax if its payroll exceeds a threshold of $1.2 million in a financial year. Revenue NSW may consider a contract to be a ‘relevant contract’ for the purposes of the Payroll Tax Act (2007), and their wages will be included in a practice’s overall payroll liability.

Legal background

Payroll tax is governed by the Payroll Tax Act (2007) (‘Act’). Under s32 of the Act, payroll tax may be payable if there is a ‘relevant contract’ in place for services in a financial year, and if those services/related wages are obtained and paid ‘for or in relation to the performance of work.’ This test is very broad, but there are key exemptions to payroll tax set out in section 32(2) of the Act. If an exemption applies to a practitioner, then the contract is not a ‘relevant contract’ for the purposes of the Act and payroll tax does not apply.

Key exemptions that may be relevant in a medical practice are:

(a) Where a practitioner has worked in the practice for less than 90 days in a financial year;1 or

(b) The services are performed by a practitioner who ‘ordinarily performs services of that kind to the public generally in that financial year’.2 For example, a medical practitioner that provides services to the general public by consulting patients at different locations or working in a hospital may apply for this exception.

Case law

Historically, if a medical practice had medical practitioners providing services to their own patients from the practice’s premises and paying the practice a service fee for services provided by the practice to the practitioners, no payroll tax was payable on amounts remitted by the practice to the practitioners. This was turned on its head in Commissioner of State Revenue v Optical Superstore Pty Ltd [2019] VSCA 197 and Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259.

Focusing on Thomas and Naaz, the subject of the latest Court of Appeal decision, the facts are as follows:

• Thomas and Naaz (the applicants) were directors operating multiple medical centres.

• Practitioners entered into written agreements to use rooms, access shared services, and see patients.

• Patients did not pay the practitioners directly, but assigned their medical benefits to the practitioners, and the applicant submitted the benefits to Medicare. The applicant then retained 30% as a service fee, and the remaining 70% was remitted to the practitioners.

• Revenue NSW considered these practitioners were employees and issued notices of assessment for 5 years including the 70% remitted to the practitioners, amounting to over $795,000. Further penalties of 30% and interest were applied.

The medical practice objected on two grounds, namely that the contracts were not relevant contracts under the Act, and that exemptions applied to practitioners, mainly that they were free to provide services elsewhere. In support of this, the medical practice provided evidence that the practitioners had been working elsewhere as well as at the practice.

The Commissioner rejected the medical practice’s objections, and Thomas and Naaz subsequently applied to the NSW Civil and Administrative Tribunal (NCAT) to review the objection decision. NCAT upheld the NSW Revenue assessments, including the