Over recent years a string of cases has challenged the previously understood payroll tax (PRT) treatment of contractual arrangements commonly used in the medical and health sectors (hereafter referred to as ‘the medical industry’).
We have covered these cases in numerous previous editions of the Assessment .
The matter appeared somewhat settled, despite a flurry of ‘political fixes’ to exempt contractor GPs tied to bulk billing arrangements from PRT (both retrospectively and prospectively). However, the recent decision in Uber Australia Pty Ltd v Chief Commissioner of State Revenue [2024] NSWSC 1124 (‘the Uber decision’) has the potential to turn everything on its head (again).
The immediate issue arising from the Uber decision is whether it can stand but not bring into question earlier medical industry specific decisions. For taxpayers currently paying PRT on impacted medical industry arrangements, questions regarding whether refunds should be sought and whether PRT should continue to be paid now arise.
It should be noted NSW Revenue has lodged an appeal in the Uber decision with first Directions Hearing currently set down for 30 October, 2024.
The Uber decision also makes it clear that the specifics of each contractual relationship will be crucial in determining the outcome.
The background as to how PRT applies
With the exception of Western Australia, all jurisdictions have ‘relevant contract’ rules which expand the scope of taxable wages beyond traditional employer/employee salary and wage scenarios. The relevant contract rules do this by identifying certain contractually based service provision arrangements and including payments made under these arrangements as taxable wages.
In the medical industry (and prior to the recent cases) it was generally considered no PRT liability arose for arrangements commonly used whereby a practitioner agrees to treat patients (under Medicare rebate assignment or otherwise) at a clinic operated by a third party. In these arrangements, the clinic provides resources/support to allow the practitioner to treat patients, including access to premises, equipment, use of staff and other services such as fee collection etc.
The practitioner typically contracts to pay a fee to the clinic for the services provided.
The clinic would (as contractually required/entitled) collect the practitioner’s fees, deduct the service fee due to it, and remit the balance to the practitioner.
Historically, the arrangements were viewed as not giving rise to a PRT liability under the relevant contract rules on the basis that practitioners provided services to patients and received services from the clinic. The payment of money from the clinic to the practitioner was seen as the remittance of money held on behalf of/due to the practitioner from the patient (including assignment of Medicare rebates or otherwise) even if net of any service fee due to the clinic by the practitioner.
The PRT law
Using the Victoria Payroll Tax Act 2007 as an example, the key legislative provisions are:
What is a relevant contract
Section 32(1)(b) provides, a ‘relevant contract’ includes 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, has supplied to the designated person the services of persons for or in relation to the performance of work.
Section 33 and section 34 deem the person to whom under the contract, the services of persons are supplied for or in relation to the performance of work to be an employer (with the person supplying the services deemed an employee of the employer).
Section 35(1) provides 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.
Relevant contract exclusions
There are a number of relevant contract exclusions, but these are not considered in this article.
Reference should instead be had to the links included in the ‘conclusion’ for further information regarding the exclusions.
Key cases and takeaways before the Uber decision
Notable cases involving the application of the relevant contract provisions include:
Homefront Nursing Pty Ltd v Chief Commissioner of State Revenue [2019] NSWCATAD 145
Commissioner of State Revenue v Optical Superstore Pty Ltd [2019] VSCA 197
Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40
These cases (prior to the Uber decision) have examined and established whether a liability existed for arrangements used in the medical industry, focusing on whether they evidenced:
- a relevant contract; and
- a payment for or in relation to the performance of work relating to the relevant contract.
Two-way service provision constitutes a relevant contract
The arrangements used in the medical industry have been held to reflect a two-way service provision with practitioners likely to be providing services to a clinic under arrangements where they agree to treat patients (their own patients) at the clinic. These services are separate from and in addition to the practitioner receiving resources/services from the clinic that enable patient treatment.
A two-way service provision brings the contractual relationship with the definition of a relevant contract, thus satisfying section 32(1)(b).
Remittance of money held on account of a person to that person is a payment
The Optical Superstore decision became authority for the position that remitting money held on behalf of a person to that person (including where a permitted deduction of services fees occurs) is nevertheless a payment for section 35(1) purposes.
The Thomas and Naaz decision suggested that section 35(1) was not satisfied where a practitioner collected patient fees directly from the patient and from which the practitioner made payment of any service fees due. Section 35(1) was not satisfied as there was no payment by the employer to the practitioner.
On this basis, many taxpayers have altered patient fee collection processes which seemingly overcomes the possible PRT liability otherwise resulting. In relation to a sole trader practitioner this is expressly confirmed in Examples 12 and 13 of Queensland Revenue’s PTAQ000.6.3 – Relevant Contracts – Medical Centres .
A payment for or in relation to the performance of work?
In Homefront Nursing, despite there being a relevant contract and an identified ‘payment’ it was decided that certain payments were not “…for or in relation to the performance of work relating to a relevant contract”, meaning section 35(1) did not apply.
The payment in question in Homefront Nursing related to the assignment of Medicare/DVA rebates from patient to practitioner. The remittance to the practitioner of these amounts, net of any service fee, was described as a collecting mechanism but too remote to be considered a payment for or in relation to the performance of work relating to a relevant contract. Other payments made to the practitioner by Homefront Nursing were said to “…need to be further investigated by the Chief Commissioner with the assistance of the taxpayer”.
The Homefront Nursing decision approach was not adopted in later cases. The “…for or in relation to the performance of work relating to a relevant contract” requirement of section 35(1) instead was largely taken as satisfied in later cases where there was an identified relevant contract and a payment by the employer in relation to the relevant contract. However, this outcome was arguably arrived at as a result of nuances in the facts considered and limitations as to the scope of appeals heard in both matters, which increases the significance of the Uber decision.
The Uber decision
The Uber decision equally confirmed the contractual relationships involved a two-way service provision between Uber and the drivers/’partners’ bringing the arrangements with section 32(1)(b). (Note – ‘partners’ is used to refer to businesses providing transport services with individuals working for those businesses).
The decision also found that the remittance of monies to drivers/partners by Uber constituted a payment for section 35(1) purposes.
However, the decision held the requirement in section 35(1) that the payment be “…for or in relation to the performance of work relating to a relevant contract” was not satisfied, meaning section 35(1) did not apply.
The thinking is best highlighted by the following extract from the decision:
- It is not Uber who pays the driver. The rider does that. Uber is a mere “payment collection agent”. True it is that Uber has to account to the driver or partner for what it has received as agent, but by the time it does that, the driver has, in accordance with the legal relationship between the parties, already been paid, and the rider has discharged their obligation to pay the driver for the ride.[6] The quoted clauses of the Contracts provide expressly that riders’ payments are considered the same as payment made directly by the rider to the driver or partner.
- There is undoubtedly some form of relationship between Uber’s payment and the work which the driver performed, not least of all because, had the driver not driven, there would no money for which Uber would have to account to the driver by paying the driver. But I do not consider that that relationship is one which can fairly be described as being “in relation to” the work, in the context in which that phrase appears in s 35(1) and with the objects of Division 7 squarely in mind.
- There is no element of reciprocity or calibration between the driver and Uber or the rider and Uber with respect to the money paid by the rider. Those elements exist only between the driver and the rider. The payment here is made pursuant to an obligation to account, and no more.
- What the rider pays the driver is for or in relation to the work done by the driver. What Uber pays the driver is in relation to the payment Uber has received, not in relation to the work itself.
The Uber decision must now be contrasted, for example, to how the Queensland Revenue Office rationalised (in PTAQ000.6.3 – Relevant Contracts – Medical Centres) why section 35(1) was satisfied. The explanation, whilst drawing specifically from the Thomas and Naaz scenario, is relevant to the medical industry more broadly.
- The phrase ‘in relation to work’ requires either a ‘direct’ or ‘indirect’ relationship between the payment and the performance of work (see Commissioner of State Revenue (Vic) v The Optical Superstore Pty Ltd [2019] VSCA 197 at [65]). In Thomas and Naaz the Tribunal decided (at [67]–[68]) that there was such an ‘indirect’ relationship where the contractual relationship included the following characteristics:
- the doctors provided the services to patients
- the patients assigned their medical benefits to the doctors
- Thomas and Naaz, on behalf of the doctors, submitted the assigned claims for the medical benefits to Medicare
- Medicare paid those benefits to Thomas and Naaz
- Thomas and Naaz retained 30% of the amounts received from Medicare and paid the remaining 70% to the doctors as the payments.
- It does not matter that payments to a practitioner are paid from money received by the medical centre on behalf of practitioners, whether from ‘out-of-pocket’ patient fees or assigned Medicare benefit from patients, even if the practitioner is beneficially entitled to that money (see Commissioner of State Revenue (Vic) v The Optical Superstore Pty Ltd [2019] VSCA 197 at [67]). When the practitioner’s entitlement is recognised and the money is paid or becomes payable, it constitutes wages for payroll tax purposes.
Conclusion
The question of what constitutes a payment (to the extent money is held and remitted by a clinic or other intermediary) seems reasonably settled.
However, the question of whether a payment is “for or in relation to the performance of work relating to a relevant contract” seems to be wide open once again.
While there are significant factual and contractual differences between the Uber arrangements and the Optical Superstore and Thomas and Naaz type arrangements, the Uber decision raises a significant challenge for the Revenue Office position.
The Uber decision brings into sharp focus whether section 35(1) is in fact satisfied where an amount ‘paid’ is merely the agreed fee payable by a ‘customer’ to a ‘service provider’ for a service provided, albeit the fee is collected/remitted by an intermediary.
For completeness, we reference below the public position of each Revenue Office (as it stood before the Uber decision). We also include a link to the ‘political fix’ adopted for bulk-billing contractor GP arrangements.
| Revenue Office position re PRT in medical industry | Revenue Office/ Government position re bulk billing contractor GP “PRT fix” | |
| VIC | PTA-041 – Relevant Contracts – Medical Centres | Payroll tax and the medical industry |
| NSW | PTA 041 Payroll Tax Act – Relevant Contracts – Medical Centres | Commissioner’s Practice Note CPN 036 – Relief to Medical Centres |
| QLD | PTAQ000.6.3 – Relevant Contracts – Medical Centres | Payroll tax amnesty for contracted General Practitioners (GPs) |
| SA | PTASA003 – Relevant Contracts – Medical Centres | Information Circular 106 – Payroll Tax Amnesty for Medical Practices |
| ACT | PTA 041 Relevant Contracts – Medical Centres – Payroll Tax | Amnesty for medical practices with contracted general practitioners |
| TAS | N/A | N/A |
| NT | N/A | N/A |
| WA | N/A | N/A |
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