PAYROLL TAX & ‘TENANCY AGREEMENTS’
In March, we wrote about recent developments affecting the application of Payroll Tax to ‘tenancy agreements’.
These arrangements are common-place in the medical, allied health and dental industries and involve health practitioners that conduct business from premises controlled by a practice operator.
These arrangements are often referred to as ‘tenancy agreements’ or ‘services & facility agreements’ (SFAs), and typically involve the practitioner utilising rooms, accessing support/administrative services and other peripheral items provided by the practice operator.
The practitioner will typically contract with the practice operator for these items and also appoint the practice operator as an agent to collect consultation/treatment fees on their behalf.
The practice operator will then periodically remit fees collected to the practitioner less a service fee that is typically 30-40% of fees collected.
Historically, the prevailing view has been that the practitioner is operating their own business and is neither an employee nor a party operating under a ‘relevant contract’.
Hence, practice operators have not paid Payroll Tax on the remittances made to practitioners.
However, the decisions in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue and The Optical Superstore Pty Ltd & Ors v Commissioner of State Revenue have held that Payroll Tax does apply to these type of arrangements.
The Queensland Government has acknowledged that this outcome represents a significant shift in the previously accepted position and has announced an amnesty specifically for GPs to 30 June 2025. Similarly, South Australia has announced an amnesty to 30 June 2024.
The ACT government has also announced an intention to introduce a temporary Payroll Tax exemption for GP medical centres.
Meanwhile, the Western Australian government has advised that under current Payroll Tax provisions, most health professionals working in practices under independent agreements will not be caught for Payroll Tax purposes. Further, that the Western Australian government has no intention to change these provisions.
No other state has opted to go down this path with the expectation that practices will take steps to ensure compliance immediately.
More recently, rulings have been issued by Revenue NSW and the Victorian SRO to formalise their position on the application of Payroll Tax to these arrangements following the legal precedent set in the aforementioned cases.
This issue is causing considerable angst in the health sector as it has serious ramifications for business models and exposes practice operators to potentially significant historic Payroll Tax liabilities.
Subsequent to the issuance of the rulings, the NSW Minister for Finance, Courtney Houssos moved to calm the situation by announcing a pause on Payroll Tax Audits of these arrangements for 12 months and also a pause on accrual of penalties and interest.
During this period, the NSW government will consult with industry representatives in order to work towards a practical solution that underpins access to quality and affordable healthcare.
The RACGP, AMA and AGPA have written a joint letter to the Victorian Premier seeking urgent intervention. At the time of writing, we understand that there have been no comments or announcements made.
Whilst there may ultimately be governmental intervention on this issue, that may take some time. Meanwhile, affected practices should be reviewing their arrangements and looking at what actions need to be taken to ensure compliance.
If you have been impacted, we encourage you to get in touch for assistance to assess your position and to put into place an appropriate action plan.
Sky Accountants Ballarat
Phone: 03 5332 8855
Office Address: 902 Howitt Street, Wendouree, Victoria 3355, Australia
Postal Address: PO Box 2234, Bakery Hill, Victoria 3354
Sky Accountants Gisborne & Macedon Ranges
Phone: 03 5428 1400
Office Address: 45 Hamilton Street, Gisborne, Victoria 3437, Australia
Postal Address: PO Box 270 Gisborne Victoria 3437