#257 Payroll tax decisions- implications for medical practices
21 January 2020
Members may be aware of a decision of the Victorian Supreme Court of Appeal, Commissioner of State Revenue v Optical Superstores Pty Ltd, and a recent revenue ruling by Victoria’s State Revenue Office (PTA-021v2) and what both could potentially mean for medical practices.
Standard procedure for many medical practices is for the practice to manage money by receiving payment on behalf of doctors and later distributing it to them.
Optical Superstores, in relation to a similar business model, required that payroll tax be applied to money before it is distributed to individual optometrists, despite the fact that the money was only being held on their behalf. Revenue ruling PTA-021v2 deems, unless an exclusion applies, certain contractors employees (notwithstanding the express terms of the contract) with the effect that the principal (i.e. practice owner) is liable for payroll tax for these contractors in addition to any support staff employed by the practice.
The procedures caught by Optical Superstores and PTA-021v2 are incredibly common throughout Victoria and are now essentially the standard for how medical care is offered outside hospitals.
We have recently written to Health Minister Foley and suggested that these decisions could threaten the viability of many practices in the best of times due to the increased tax burden it places on them, but the tail end of the COVID-19 pandemic is an especially poor time for this. Furthermore, with the role that general practice is expected to play in the rollout of the COIVD-10 vaccine, it is essential that they remain financially viable.
Additionally, we made the point to the Minister that, given that the State Government has introduced several payroll tax relief measures during COVID-19, it is ironic that the SRO has decided to pursue professional contractors at this time.
AMA Victoria also understands that many individual doctors have structured their tax affairs on the understanding that they are contractors, and these decisions have the potential to upend that understanding.
We have urged the State Government to act on this quickly and reform payroll tax law in Victoria to ensure the viability of practices and practitioners moving forward. We are expected to meet with the Government in the next few weeks.
However, it is important to note that there are differences between Optical Superstores and the standard procedures of many medical practices (including that Optical Superstores required contractors to complete timesheets), and an unfavourable audit for practices is not guaranteed.
Moreover, we are working closely with our financial services partner, the Bongiorno Group, to develop alternative models for practices to ensure that they avoid falling afoul of mistargeted laws.
Members will be updated on this issue in the coming weeks.
Prepared with the assistance of the Bongiorno Group