You may well have seen the recent media release by AMA (NSW) on the payroll tax issue facing medical practices (see AMA (NSW) Media Release). This issue has been a live concern for practices for 12 months (see our blog October 2019 blog) and whilst we welcome the entry of AMA (NSW) into the fight to have legislation changed, we are also realistic of the chances of having the payroll tax legislation changed in each State to exclude medical practices.
To put the issue in context, we are aware that NSW Office of State Revenue (OSR) have conducted at least 20 payroll tax audits of medical practices so far and, in the view of a payroll tax expert, are actively engaged in an audit program. Given the similarities in legislation across the State jurisdictions, we anticipate Queensland, ACT and Victoria will follow suit. Unfortunately, on the back of the Optical Superstores precedent, OSR have issued audit claims for substantial sums covering payroll tax and penalties going back five years – in some cases amounting to hundreds of thousands of dollars.
OSR currently have taken the view, based on the Optical Superstores precedent, that any instance where:
- A practice contracts with doctors to provide medical services to patients of the practice;
- The practice collects the patient billings; and
- The practice on-pays a net amount to the doctor after deduction of management/service fees will potentially expose the medical practice to payroll tax on the net payment to the doctor (eg. payroll tax should be levied on the 65% of gross billings paid to doctor).
Unless either the law is changed (as proposed by AMA (NSW)) or a medical practice successfully challenges OSR in a court case which overturns the decision in Optical Superstores, it appears that practices are at risk.
Next Step
We have been working with a payroll tax specialist to develop a staged approach to reviewing the position of our practice clients with the express purpose of minimising their risk profile and hence any penalties that may be levied by OSR in the event of an audit.
Click here to see our flyer on this service.
We recommend every practice should be reviewing their possible exposure (likely to be tens of thousands if not more).
Please contact us if you or someone you may know are interested in obtaining a quote for the first step in this process and we can discuss the information you will need to provide.
