Concerns are growing for medical and allied health practices over exposure to payroll tax obligations following the NCAT decision in the Thomas & Naaz Pty Ltd case.
This ruling has set alarm bells ringing for many practice owners worrying that the structure of their service agreements will leave them exposed and liable to pay a hefty payroll tax bill.
What actually happened in Thomas and Naaz?
It was decided that the payments made by the medical practice service entities to the doctors engaged under service agreements were ‘wages’ for the purpose of payroll tax even though the payments represented the doctors’ own Medicare billings collected by the service entities on their behalf.
As a result, Thomas and Naaz Pty Ltd was liable to pay $795,292.95 for payroll tax assessments for the period from 1 July 2013 to 31 March 2018.
For full details on the case, we highly recommend the article published by Cooper Grace Ward Lawyers – Payroll tax problems – is Thomas and Naaz a bitter pill to swallow for medical practices?
Is your practice at risk of being liable for payroll tax?
The case demonstrates that the definition of ‘wages’ for the purpose of payroll tax is very broad and is capable of being extended to remittances of patient fees already owned by practitioners.
The risk for medical and allied health practices is that their terms of a services agreements, and what happens in practice, may mean a practitioner is providing services not only to their patients, but also to the practice entity.
If your practice is exercising a high level of control over their practitioners, it will likely be viewed they are essential to the service entity’s business of carrying on a medical practice and therefore the practitioner is providing services not only to their patients, but also to the practice entity. Upon audit, it may be ruled that the practice entity is liable to pay payroll tax.
Now is the time to check service agreements and the reality of how your practice is being operated.
It is important to understand although payroll tax is a state-based tax with each state having their own payroll tax legislation, rates and thresholds, the key provisions of the state’s Payroll Tax Acts are harmonised.
The relevance of Thomas and Naaz case is not limited to NSW, it has potential implications in all states and territories.
How can Walsh Accountants help?
If you have any concerns about your service agreements and exposure to payroll tax, please be sure to discuss with us.
Whilst we have a specialist Walsh Health division, this is not our area of expertise so we are happy to connect you with a lawyer who specialises in this field and support you throughout the process.