The state government has started considering Contractor GPs as employees for payroll tax purposes.

As we had flagged in our previous article ‘Health Professionals in the firing line‘, there were growing concerns Queensland would begin treating medical professionals under a service agreement (contractors) as employees for payroll tax purposes.

Well recently, those fears were realised and the State Government started issuing Payroll Tax Assessments to some Qld medical practices. In fact, some practices have received retrospective bills of as much as $3 million, going back five years, the AMAQ said, with an estimated 81 per cent of general practices to be affected.

The Australian Medical Association Queensland (AMAQ) has warned a “greedy” state tax grab will cripple general medical practices and end bulk billing. The response from Government to date has suggested they will continue to pursue medical practices and allied health practices. More general information from the AMA can be found here. Unfortunately, these issues were flagged some time ago and the AMA seems to have been a bit late to the party.

While much of the chat has been about GPs and the AMA, these rules equally apply to any health professional practice.

So what has changed…. According, to the State Government… nothing! The State Government believe they are applying existing rules to situations that it has always applied to. The real problem is the State Government has never actively applied the rules consistently to Medical Practices (or other similar businesses) previously. In addition, the generally accepted situation where the Medical Practice provides room/facilities to the health professional, and the health professional is running their own business and providing the service to the patient, are no longer considered automatically exempt from Payroll Tax. Instead, the minutia of the Service Agreement must be examined to determine if “services” are provided in both directions. Importantly, the health professional using a company or trust does not necessarily change the outcome.

Unfortunately, some recent payroll tax cases heard in NSW (one is currently being appealed), is a wake-up call for all medical practices to review their agreements to reduce the potential for payroll tax assessment. These cases have essentially given the OSRs around the country more confidence they can tackle these contractor arrangements. More information can be found on the NSW AMA site here and CGW’s website (excellent resource).

What can medical practices do?

• Ensure your service agreement adequately describes the actual arrangement – do you have an up-to-date service agreement in place? If your agreement is more than a few years old, they are probably no longer compliant with new interpretations and you should seek to have them reviewed by legal specialists in this area.
• How do you collect your fees? A strong argument against employment is collection of fees directly by the health professional, rather than by the practice. Yes…. we all understand the issues that go with this and how out of date the OSR’s view on this is.
• Be specific with details. It is important that written agreements are reviewed to ensure practice arrangements, while reflecting what actually happens, and that they are not akin to an employer/employee relationship. Essentially, you can’t have your cake and eat it too… they are either a Contractor and free to do what they wish as an independent business owner, or you risk mudding the waters and being a “quasi employee” for payroll tax purposes, despite a contractor agreement being in place.
• Set up a specific medical practice chart of accounts and accounting for assets, liabilities, income and expenses correctly and consistently. Put internal controls in place to ensure that the bookkeeping is appropriate. The financial statements must accurately reflect the practice arrangements.
• Consider whether or not the ownership of clients and client records is critical to the practice. Such retention may lead to the conclusion that the patients belong to the practice and not to the doctors.

Watch this space – it is likely there will be a lot more information to follow in the coming months. In the meantime, if you are a health professional practice of any type, you should be reviewing your contractor agreements asap.

Disclaimer: This article contains general information only. Regrettably, no responsibility can be accepted for errors, omissions or possible misleading statements or for any action taken as a result of any material in this guide. It is not designed to be a substitute for professional advice, as such a brief guide cannot hope to cover all circumstances and conditions applying to the law as it relates to these items.