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The recent NSW payroll tax case of Thomas and Naaz concerned the healthcare sector about the potential payroll tax liabilities of medical practitioners and medical centres. In 2020, many revenue offices have taken a hard line approach on the work arrangements between medical centres and medical practitioners for tax purposes. Their relationship used to be excluded from payroll tax but revenue offices will review this relationship.

Payroll tax

In the Thomas and Naaz case, medical centres in NSW were liable for $795,293 in payroll tax for medical practitioners whose wages fall under the Payroll Tax Act. The healthcare sector must review arrangements consistently to see ambiguities that could lead to payroll tax liabilities. Medical centre operators must remain diligent to avoid consequences.

Medical centre owners and doctors are encouraged to review all service and independent contractor arrangements for medical centres. Service arrangement agreements must clearly specify the role of the service provider related to patient fees and the practitioner’s service fee obligations. Practicing doctors in clinics must have a high level of autonomy when they conduct their independent medical practice.

The revenue state office is looking into the payment arrangements of doctors and medical centres and how payments must be assessed for tax purposes. Check your service arrangements in form and substance to make sure you have the right procedures and processes in place. Focus on how the medical centre collects fees on behalf of the doctors. The medical centre must act as a collection agent only. Medical centres must not direct doctors on how to conduct their medical practice.

Seek advice to see if you have potential payroll tax liabilities as assessing them now could save medical centres large tax liabilities. Contact doctor accountants to know if you have the right legal structure for your medical practice.

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