GP Clinics left in ‘uncertain position’ on payroll tax, says KPMG

Recent payroll tax rulings issued by the NSW and Victorian governments in August on the issue of whether payroll tax applies to contractual agreements between medical practices and medical practitioners continue to create significant uncertainty for medical centres and GPs, KPMG has said in a recent podcast.

The rulings by Victoria and NSW follow similar rulings previously issued by South Australia and Queensland.

The Queensland Revenue Office this week has now issued a revised ruling on the issue PTAQ000.6.2 which replaces the previously issued PTAQ000.6.1.

Accounting firm William Buck said the new ruling is substantially similar to the original, with some additional commentary and additional examples on scenarios that would not be subject to payroll tax as well as scenarios that would be subject to payroll tax.

"The examples provided clarify that the Revenue Office considers that where a medical practice collects patient fees on behalf of a doctor, whether these fees are assigned via Medicare or paid directly to the practice, and then fees are distributed to the practitioner, that these arrangements will see the payment made to the doctor be treated as deemed wages and therefore subject to payroll tax," said William Buck in a recent Payroll Tax Circular.

"However, in Paragraphs 56 to 61 of the Ruling, the examples and commentary provided confirm the position that where payments are made directly to the practitioner, whether directly by the patient or by the patient assigning their Medicare benefit to the practitioner, these payments will not be considered deemed wages for payroll tax. Therefore, although there may be a relevant contract in place, these payments will fall outside the scope of payroll tax and will not be included in any payroll tax calculations,"

Other states, with the exception of Victoria, have issued various amnesties regarding the issue, while Western Australia has confirmed it does not intent to follow the other states in making medical centres liable for payroll tax.

KPMG senior manager Farzana Ahmed said despite the amnesties that have been issued, the respective state revenue offices across NSW, Victoria, South Australia and the ACT appear aligned on their position that payroll tax would generally be expected to apply where a medical centre engages a practitioner to practice from the medical centre or holds out to the public that it provides patients with access to medical services of a practitioner, unless an exemption applies.

“The rulings from the revenue offices are far reaching and potentially apply to standard arrangements between medical centres and GPs which commonly which commonly involve medical centres being engaged by GPs to provide administrative services, clerical and professional staff, rooms and equipment necessary for the GP to provide medical services to patients," she said.

KPMG partner Keith Swan said it’s not really clear at this stage exactly what medical centre operators will be captured under these rulings.

“In my experience, many medical centre operators don’t engage doctors or GPs to provide services on their behalf. In fact, there are regulatory reasons why medical centres generally aren’t in a position to be able to provide medical services to patients and that’s because of that regulatory hurdle,” said Mr Swan.

“So it’s difficult to see how the understanding of the revenue offices would work in practice. To the contrary, most arrangements we’ve seen involve medical centres being engaged by GPs to provide the administrative service and the room and equipment in order for the GP or doctor to be able to provide medical services to patients.”

Mr Swan said a closer reading of the rulings suggests that the revenue authorities will place greater weight on the substance of the arrangement rather than the terms of the written agreement between the medical centres and the doctors.

“So when you consider the way that GPs usually run their own practice, there’s lots of aspects of those arrangements which mean that GPs are effectively running their own independent business in providing medical services to patients rather than simply acting on behalf of a medical centre.

“The challenge, of course, is that this is not really acknowledged in the revenue rulings,” said Mr Swan.

“So we’ve been left with a level of uncertainty regarding an approach which doesn’t appear to be based on a strict reading of the legal contracts between the parties but rather the revenue office’s perception of the substance of the arrangement once they’ve undertaken a review or audit.”

A court looking at these types of arrangements, on the other hand, is more likely to place greater weight on the actual legal agreement, said Mr Swan.

“So there’s some uncertainty in terms of how much weight you place on the legal agreement versus the substance of the arrangement.”

Mr Swan said accountants and medical centres are unlikely to get further clarity on the issue until there is further litigation on this topic.

“It seems to be one of those arguments that hasn’t really been properly ventilated in a court,” he said.

“It will be interesting to see how that plays out given the various amnesties that now exist in some states and territories.”