STOP PRESS – NSW and ACT GP relief. Significant guidance from Victoria and NSW on Medical clinics payroll tax, but questions still remain – and another amnesty

STOP PRESS – since this article was published on 16 August, as foreshadowed, other jurisdictions have announced ‘relief’ measures for GP’s/ GP clinics impacted by the proposed application of the PRT relevant contract rules. We have updated this article to include below a summary of the relief measures in NSW and ACT. This leaves Victoria and Tasmania as yet to announce relief measures.

The wait is finally over! On 11 August 2023, Victoria and NSW Revenue Offices have finally released rulings titled PTA 041 ‘Relevant Contracts – Medical Centres’ (click to see Victoria and/or NSW ruling). This provides much needed clarification on issues relating to the payroll tax (PRT) treatment of service agreements commonly used throughout the medical and allied health professions.

Despite slight differences, the rulings are ‘harmonised’ and suggest a similar outcome in both jurisdictions. Victoria and NSW now join Queensland and South Australia Revenue Offices, with Queensland having issued PTAQ 0006.1 ‘Relevant contracts – medical centres’ (December 2022) and South Australia PT SA003 ‘Relevant Contracts – Medical Centres’ (June 2023). All four rulings are harmonised and express similar views.

The rulings are welcomed given a need for clarity as to how Revenue Offices see the PRT relevant contract rules (and exclusions) applying to these types of arrangements. It was also hoped some clarity would emerge as to how/when the 3^rd party payment rules would be applied where patient fees are collected directly by a practitioner (we call this the “payment flow” issue).

If you want to follow the story so far have a read of our earlier articles which explore why such agreements give rise to taxable wages under PRT relevant contracts rules (see our earlier articles from January 2023, February 2022 and June 2023).

We will let you explore the rulings at your leisure. By way of general comment, the rulings suggest most service arrangements will prima facie result in a relevant contract between the practitioner and medical clinic. The rulings also explore when the various exclusions to the relevant contract rules apply, and confirm the exclusions are fact specific and must be able to be substantiated.

In this article, we will explore what the rulings have to say (or don’t say) about the payment flow issue. Before doing, this let us first have a look at amnesties that are available in South Australia and Queensland.

Recent Developments – another amnesty

Like Queensland, South Australia has implemented an amnesty for medical clinics that engage ‘general practitioners’ (GPs). The South Australian amnesty also allows a time frame for clinics to adjust commercial arrangements, to ensure payroll tax compliance is consistent with the Revenue Office view expressed in the ruling. Most importantly the amnesty provides no retrospective liability will be imposed where a taxpayer’s treatment of payments is not in line with the ruling. The South Australian amnesty details can be viewed at Information Circular 106 – Payroll Tax Amnesty for Medical Practices 

The major elements of the South Australian amnesty are:

• it deals with medical clinics arrangements with GPs only;
• covers the period ending 30 June 2024;
• only applies where payroll tax has not been paid (meaning clinics who have been paying PRT do not benefit from the amnesty) and
• requires an application to participate in the amnesty to be lodged by 30 September 2023.

The terms of the Queensland amnesty apply to the period ending 30 June 2025 and can be viewed here. An application to participate in the Queensland amnesty must be made by 29 September 2023.

Whilst the amnesties are welcome, why they are limited to GPs is presumably merely a function of ‘lobbying prowess’

Victorian and NSW Revenue officers indicated (at a recent Tax Institute, State Taxes conference, Darwin July 2023) that no amnesties are expected in those States. Ultimately though, political powers will dictate that decision so the jury is out on this possibility for now.

In NSW, on 24 August 2023 the Revenue, Fines and Other Legislation Amendment Bill 2023 was passed an includes provisions to be inserted into the Taxation Administration Act 1996 stating:

“During the relevant period,  the Chief Commissioner must not conduct an audit of—

(a) a general practitioner’s compliance with the Payroll Tax Act 2007, or

(b) compliance with the Payroll Tax Act 2007 by an entity with whom a general practitioner has a practice arrangement, to the extent amounts paid or payable by the entity relate to the general practitioner”.

The NSW approach is somewhat unusual and differs to that taken in other jurisdictions.  The NSW Revenue website should be monitored for further announcements particularly in relation to existing audits and what is the position post the ‘relevant period’ in terms of earlier years.

‘Relevant period’ means the period starting on the day on which the Revenue, Fines and Other Legislation Amendment Act 2023 commences (the date of Royal Assent), and ending on the day that is 12 months after the day that Act commences.

On 26 August 2023, the ACT Government announced relief measures including:

• waiving PRT liabilities until 30 June 2023 for medical practices that have not previously paid PRT on GP payments; and
• extending time until 30 June 2025 for other eligible general practices and healthcare businesses to ensure PRT compliance where arrangements with GP’s would otherwise be subject to PRT under the relevant contract rules. There appears to be an obligation for an ‘employer’ to register so as to take advantage of the extension.

Again the initial announcement lacks detail so the ACT Revenue website should be monitored for further announcements and to ensure employers are eligible to take advantage of the relief measures.

The payment flow issue

The big question, the relevance of ‘payment flow’ is still far from clear notwithstanding the rulings have issued.

The ‘payment flow’ question involves just that, “does the flow of patient fees impact the outcome”. Example 12 in the Victorian, NSW, South Australian and Queensland rulings uses a 3^rd party payment scenario to suggest PRT can apply where a party other than the medical clinic makes a payment to the practitioner.

Example 12 (which is identical in each ruling albeit dealing with section 51 of the PRT law in Queensland and section 46 of the PRT law in the other jurisdictions) reads:

 Example 12—Wages paid by a third party to a practitioner—s.51

• ABC Pty Ltd (ABC), which operates a medical centre, enters into a contract with Dr Wolf who agrees to serve patients for or on behalf of ABC. The contract is a relevant contract under s.13B(1) and none of the exemptions under s.13B(2) apply.
• ABC is taken to be an employer under s.13C. Dr Wolf is taken to be an employee under s.13D(1)(a).
• The contract provides patient fees including bulk billed Medicare rebates are to be assigned by Dr Wolf to P Pty Ltd (P Co). At the end of each month P Co is required to pay 30% of the revenue to ABC and 70% to Dr Wolf.
• Under s.51, the payments by P Co to Dr Wolf are taken to be wages paid by ABC to Dr Wolf because the payments are remuneration for the services of Dr Wolf that would have been wages if they had been paid or payable by ABC (a person taken to be an employer) to Dr Wolf (a person taken to be an employee)

Example 12 is quite specific and covers a situation where ‘The contract provides patient fees including bulk billed Medicare rebates are to be assigned by Dr Wolf to P Pty Ltd (P Co). At the end of each month P Co is required to pay 30% of the revenue to ABC and 70% to Dr Wolf’.

However, where a practitioner is able to and does collect fees directly (including assignment of Medicare benefits) and then pays any service fee due to the medical clinic, do the 3^rd party payment rules apply?

The rulings and Example 12 do not assist taxpayers determine this question. A practitioner collecting fees directly may be a continuation of historic practice or result from a change in practice. Would a change in practice have a bearing on the outcome?

Likewise, arriving at a view on any potential liability under the 3^rd party payment rules and therefore whether to participate in an amnesty (if available) is not greatly assisted by the rulings.

Should a taxpayer assume Example 12 implicitly confirms there is no PRT payable, where a practitioner is able to and does collect fees directly from which any service fee due is paid? Does Example 12 also support the same outcome where a practitioner operates as a sole trader or through an entity owned or connected to the practitioner. Again, can it be assumed the reference to Dr Wolf and P Co Pty Ltd in Example 12 implies P Co Pty Ltd (the 3^rd party making the payment) is not an entity owned or otherwise connected to Dr Wolf (the practitioner).

This type of interpretation may be supported by the NSW Supreme Court of Appeal judgement in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40 (‘Thomas and Naaz’).

The Thomas & Naaz appeal confirmed the earlier Supreme Court decision that the arrangements in question were relevant contracts. The facts in the case were such that, as the clinic collected and distributed practitioner fees net of the service fee due to it, section 35 of the NSW PRT law was satisfied as there was an amount paid by the clinic that is “… for or in relation to the performance of work relating to a relevant contract…”.

For reasons that remain unclear, in the Thomas and Naaz case, 3 practitioners had collected fees directly (being assignment of Medicare benefits), and these amounts were not included as taxable wages when assessments were originally raised.

Leeming JA stated (when pondering whether the case was of as great significance as the Counsel for the taxpayer indicated):

“67. It was further said that the fact that the three medical practitioners who processed their own claims for medicare benefits, and who therefore did not receive 70% paid to them by the applicant, but instead remitted 30% of what they received to the applicant, were not included in the calculation of assessable wages, showed that the construction adopted by the Chief Commissioner was absurd or capricious. I do not agree. Division 7 of Part 2 extends the scope of the concepts of “employer”, “employee” and “wages” so as to expand the basis upon which payroll tax is assessed. It does so in quite artificial ways. One of the elements upon which the deeming provisions operate is the making of a payment by the (deemed) employer to the (deemed) employee. The administratively convenient approach adopted by the majority of medical practitioners meant that there was a payment made by the applicant to those medical practitioners. The approach taken by the other three meant there was no payment, and so the deeming provisions were not engaged. That result does not bespeak error in the application of Division 7 to the majority of medical practitioners who did receive payments from the applicant.

…

73. Secondly, some submissions were made, directed to the question of leave, as to the general application and public importance of this particular decision. It may be that persons operating other medical practices have adopted similar administrative arrangements whereby medicare benefits which have been assigned by patients to the practitioners are collected by the operators of the centre and distributed to the practitioner. It may readily be seen how this might suit the operator (which will not have to rely upon the efforts of a practitioner to process claims and remit a percentage entitlement to the operator if the position resembles that in the present case). However, taking that course runs the risk of the deeming provisions in Division 7 of Part 2 of the Act being engaged. As is clear from the position of the three practitioners who processed their own claims for medicare benefits, there is a ready mechanism to avoid that result which is available. That tends against the conclusion that an important question of general application is thrown up by this .”

And so, we enter the 2024 PRT year, finally with greater clarity as to how Revenue Offices view the relevant contract rules (and exclusions) as applying to service agreements commonly used throughout the medical and allied health professions.

However, the question of whether payment flow matters remains.

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