Navigating GP Payroll Tax in Victoria: Your Quick Guide

By Kaleem Ulah

June 5, 2024

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Medical centres in Australia will soon encounter new payroll tax obligations related to their General Practitioners (GPs). These legislative changes mean that if GPs are classified as employees due to how they are paid, medical practices may have to pay additional taxes. As the law on GP payroll tax (and contractor payroll tax in general) has changed recently, and state rules vary, it's important to know how these changes could affect your practice. Fortunately, there are still strategies that medical practices can use to structure their billing processes to avoid these payroll tax liabilities. This guide will outline these strategies and show how medical centres and doctors can adhere to the new rules without incurring higher taxes.

Victoria

The decision PTA-041 Relevant contracts – medical centres was made public by the State Revenue Office Victoria on August 11, 2023. As in other states, there has been no talk of an amnesty or a break in exams. The Australian Medical Association, the Royal Australian College of General Practitioners, and the Australian GP Alliance have asked the Victorian Government to step in. The Treasurer recognised the concerns at a recent meeting and created a working group with the State Revenue Office (SRO) to clarify things. The Treasurer also stated that they could use their "ex-gratia" powers to help businesses hit with back-dated payroll tax bills. Victoria has the lowest tax-free payroll tax level ($700,000), which will increase to $900,000 on July 1, 2024. This means that Victorian practices are much more likely to be taxed.

Overview

For medical practices, the past view has been that practitioners should not have to pay payroll taxes. That being said, new changes in laws and rules have made this view different. For example, recent court decisions in Victoria, NSW, South Australia, and Queensland, among others, have been very important in challenging the traditional view. Because of these cases, the way things are thought about has changed. Now, the government says that medical practices must pay income tax on the money they pay doctors through contracts with medical centres. This change has big effects on how medical practices and practitioners make money, so tactics and structures for making money need to be looked at again.

Also, how the government is changing its mind is not the same all over the land. States have dealt with this problem differently, using different limits, tax rates, amnesties, and auditing activities. As an example, Queensland and South Australia have given medical practices special bailouts that include money for customer fees that go straight to general practitioners (GPs). Doctors and medical office owners need to know the rules and regulations that apply in their states. You might want to get professional help to understand the details of payroll tax laws to ensure you're following the new rules.

What's happening?

Here is a quick look at the most current happenings:

  • People who go to the doctor are "customers" of both the medical business and the doctor.
  • The doctor helps both patients and the medical business as a whole.
  • There is a payroll tax on the money that the medical practice gives the doctor through customer fees.
  • Patient fees from Medicare group billing or the Department of Veterans Affairs (DVA) could be an exception.

Who is affected by this update?

The following will be affected by these changes: any medical or allied health practice that has a service agreement with a medical or allied health practitioner and "generates" more than the payroll tax-free thresholds (usually more than $1 million, but as low as $700,000 in Victoria):

  • Pay and salaries for workers; and
  • Money from patient fees

What to do next?

Before you give up, we think there are two things that medical centres should focus on next. As always, you should get help tailored to your situation. There are hints of the first in the public decisions. Payments may not be subject to payroll tax if any of the nine categories listed in the law are met. From what we've seen, medical centres may be able to get two of these exemptions.

90 days strategy 

As long as a doctor only works at a medical centre for 90 days in a fiscal year, service agreements and payments made under them are tax-free. This could be useful for doctors who work part-time and in different places throughout the year, as long as those "places" are not connected.

The general public exemption is used "if the Commissioner is satisfied that the practitioner who provided the services under the contract normally provides services of that kind to the public in that financial year." 

The decisions that were made public say that:

-- The medical centre has to ask the Commissioner to make a decision.

- The practitioner has to offer the same services to other providers, like hospitals or medical centres

The second thing medical centres should consider is something that hasn't been said in any written rulings but was brought up in all of the Thomas & Naaz decisions. In Thomas & Naaz, the medical centre gave doctors the choice of either having Medicare benefits collected by the service entity (and sending an after-service fee to the doctors, like with direct patient fees) or for the doctors to receive those benefits themselves. Three doctors picked to get the money for themselves.

What To Do With The GP Payroll Tax in Victoria 

To be on the safe side, here is what you can do.

What To Do With The GP Payroll Tax in Victoria

Know where you stand

Understanding your current position is crucial when dealing with GP payroll tax in Victoria. By evaluating the level of risk and potential liability, you can determine the urgency of seeking professional advice and taking action. Start by familiarising yourself with Victoria's payroll tax threshold and rate, as these figures are foundational to your assessment. Next, review your contractual arrangements with practitioners to ascertain whether they are considered relevant contracts under state rulings. Calculate the payments made to practitioners that could be subject to taxation, typically 65% or 70% of practitioner billings remitted to them. Identify practitioners who might qualify for payroll tax exemptions, such as those working fewer than 90 days per year or providing services to the general public. Assess the annual payroll tax liability's impact on your business and evaluate the risk of state audits, investigations, and potential penalties.

Explore concessions and amnesties

Each Australian state offers specific payroll tax concessions and amnesties, making it essential to understand your options. Research the concessions and amnesties available in Victoria, noting any participation deadlines to ensure you don't miss out. Consider the details and reporting obligations associated with these amnesties, weighing the risks and benefits before deciding to participate. Consulting with an experienced accountant or lawyer can provide valuable guidance through this process.

Plan for the future

Healthcare businesses should look beyond the current concessions or amnesty periods to plan for the future impact of payroll tax. Explore business models where payroll tax does not apply to practitioners, such as a true service entity model where the practice merely provides rooms and support services while doctors operate as tenants. Consider reorganising your business operations to emphasise that practitioners are independent businesses, potentially involving a review of services offered, public messaging, and direct banking to the practitioners. Sometimes, paying payroll tax may be inevitable due to shared resources, funding arrangements, complementary product sales, grant programs, or employing practitioners or traditional contractors. For profitable healthcare businesses, the cost of payroll tax may be outweighed by the cost of extensive operational changes. Collaborate with an accountant and legal advisor to explore these options effectively.

Implement it

Once you have assessed your payroll tax risk and developed a plan, it's time to implement it. Start by familiarising yourself with the rulings from Victoria's revenue office. Schedule a meeting with your accountant to discuss your risk profile and the possibility of participating in any amnesties, especially if you operate in states like South Australia or Queensland. Review and update your legal and practitioner agreements to align with your business model. Evaluate whether patient payments should be directed to practitioners' business accounts and ensure that your online and public presence reflects your business model accurately. Optimise your software and tools like HotDoc to match your financial flows and business operations. By taking these steps, you can effectively manage your payroll tax obligations and mitigate potential risks.

Conclusion

Australia's medical practices are still very much at risk because of the workforce tax. Due to the changing laws and the money at stake, medical practices need to stay alert, get the right help, and change how they do business to lower their payroll tax liability. One quick and easy way to lower your income tax bill is to switch billing and collection to GoCardless. This way, outpatient and Medicare payments go straight to GPs, who pay medical centres for room rentals and other services.

Frequently Asked Questions

What recent changes have been made to the GP payroll tax in Victoria?

Recent legislative changes mean that if GPs are classified as employees due to how they are paid, medical practices may have to pay additional payroll taxes. These changes have shifted the traditional view that practitioners should not be subject to payroll tax.

Why are medical centres in Victoria concerned about these payroll tax changes?

Medical centres are concerned because the changes mean they might have to pay payroll taxes on the payments made to GPs, which can significantly impact their financial operations. The low tax-free threshold in Victoria increases the likelihood of these practices being taxed.

How do these changes affect the classification of GPs for payroll tax purposes?

Under the new rules, depending on their payment structure, GPs may be classified as employees rather than independent contractors. This reclassification means that medical centres may have to pay payroll tax on the income they pay to GPs.

What strategies can medical practices use to manage these new payroll tax obligations?

Medical practices can explore business models where payroll tax does not apply, such as a true service entity model where doctors operate as tenants. They can also look into potential exemptions and ensure that their contractual arrangements align with these models.

Are there any exemptions from payroll tax for GPs in Victoria?

Yes, exemptions may apply if certain conditions are met. For instance, if a GP works at a medical centre for fewer than 90 days in a fiscal year or provides services to the general public, their payments may be exempt from payroll tax.

What should medical centres do to assess their payroll tax risk?

Medical centres should review their current contractual arrangements with GPs, calculate potential taxable payments, and identify any practitioners who might qualify for exemptions. Consulting with an accountant or legal advisor can help accurately assess the risk and liability.

How can medical practices ensure compliance with the new payroll tax rules?

Medical practices should update their legal and practitioner agreements, ensure that their business operations reflect independent contractor relationships where applicable, and consider redirecting patient payments directly to practitioners' business accounts. Regular consultations with tax professionals are also recommended.

How should medical centres plan for the future regarding payroll tax?

Medical centres should explore various business models, review their operational structures, and consider reorganising to emphasise the independence of practitioners. Planning for the future involves evaluating the cost-benefit of paying payroll tax versus making extensive operational changes.

What steps can medical centres take to implement changes and manage payroll tax obligations?

Medical centres should familiarise themselves with relevant rulings, consult with their accountants, update legal agreements, evaluate payment structures, and optimise financial flows and business operations to align with the new rules. Implementing these steps can help mitigate potential payroll tax risks.

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About the Author / By Kaleem Ulah

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Kaleem is CEO & Author at "The Kalculators". With more than 10 years of experience in financial services, He built Kalculators to transform your financial challenges into strategic triumphs!

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