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Understanding Payroll Tax Liability and Relevant Contracts in Medical Centres

· 4 min read
Myaccountant Team

Payroll tax is a state and territory tax on wages paid by employers. For most industries, the rules are relatively straightforward — if you employ staff, you pay payroll tax on wages above the threshold. But for medical centres that engage general practitioners and other clinicians as independent contractors, the rules are considerably more complex.

The Relevant Contracts Provisions​

Each state and territory has payroll tax legislation that extends the definition of "wages" beyond traditional employment. The relevant contracts provisions deem certain payments to contractors as wages for payroll tax purposes, even when the worker is genuinely self-employed for all other purposes.

Under these provisions, payments made under a contract where a person supplies services to a client of the principal — rather than to the principal itself — can be treated as taxable wages. This is precisely how most medical centres operate: the practice engages GPs as contractors, and those GPs provide medical services to the practice's patients.

Why Medical Centres Are Affected​

The typical medical centre model involves a practice that provides premises, equipment, reception staff, and a patient base. GPs are engaged as independent contractors and receive a percentage of the fees generated from their consultations. The practice retains the balance as a service fee.

Revenue authorities across Australia have increasingly taken the view that these arrangements fall within the relevant contracts provisions. The reasoning is straightforward: the GP is supplying services (medical consultations) to clients (patients) of the principal (the medical centre). The payments made to the GP are therefore deemed wages for payroll tax purposes.

The Financial Impact​

For medical centres that have not been accounting for payroll tax on contractor GP payments, the financial impact can be severe. Payroll tax rates vary by jurisdiction — typically between 4.75 and 6.85 per cent — and the tax applies to the gross payments made to each GP.

A practice paying $800,000 per year to contractor GPs could face a payroll tax liability of $40,000 to $55,000 annually, depending on the state. Where revenue authorities conduct retrospective assessments, the liability can extend back several years, plus interest and penalties.

Recent Developments​

Several state revenue offices have conducted targeted compliance programs aimed at medical centres. Victoria, New South Wales, and Queensland have been particularly active. Court decisions in these jurisdictions have generally supported the revenue authorities' position that payments to contractor GPs fall within the relevant contracts provisions.

Some states have introduced specific exemptions or concessions. For example, certain jurisdictions provide an exemption where the contractor is a medical practitioner who provides services to their own patients (as distinct from the practice's patients), or where the contractor operates through a company or trust that employs additional staff.

What Medical Centre Operators Should Do​

  1. Assess your arrangements. Review every contractor engagement to determine whether the relevant contracts provisions apply. Consider who the patient relationship belongs to — the practice or the GP.
  2. Check your state's rules. The relevant contracts provisions and available exemptions differ across jurisdictions. A structure that is exempt in one state may not be in another.
  3. Register for payroll tax if required. If your total taxable wages (including deemed wages to contractors) exceed the payroll tax threshold, you must register and lodge returns.
  4. Consider restructuring. Some practices have restructured their GP engagement models to fall outside the relevant contracts provisions. This requires careful planning and specialist advice.
  5. Seek a ruling. If you are uncertain about your obligations, applying for a private ruling from your state revenue office provides certainty and protection from retrospective assessments.

Payroll tax in the medical sector is an area of active compliance focus. Practices that have not reviewed their position should do so as a matter of priority.