Payroll tax compliance guide ‘is on its way’

5 minute read

Doctors should be alert but not panicked, says NSW AMA – and get advice now.

Now is the time for practices in NSW to seek legal and accounting advice on payroll tax, according to the state’s AMA branch, with legal guidance expected to be sent out “imminently”.

Payroll tax audits and retrospective bills have been flagged as a potential problem for medical practices for some time now. It’s coming to a head in NSW, but Victoria and Queensland may not be far behind.

While practices have always been set up to consider doctors as contractors, in the recent Thomas and Naaz case the NSW Civil and Administrative Tribunal decided that while the doctors were providing services to patients, they were also providing services to the medical centre in the operations of its business, were therefore employees, and the practice therefore liable for payroll tax.

That practice was found to owe close to $800,000 to NSW Revenue in retrospective payroll taxes.

If audited, a practice could be liable to backpay up to five years’ worth of taxes. The current threshold for the tax in NSW is $1.2 million per year, and the tax rate is 4.85%; other jurisdictions’ rates are similar.

The AMA estimate that this could work out to about $12,000 in additional costs per doctor per year.

AMA NSW President Dr Danielle McMullen said the organisation has been lobbying for an exemption for medical practices, with fears that many practices could shut down if audited.

“For at least a couple of years now, [the AMA and other stakeholders have been working] on trying to get amendments, exemptions, amnesties, workarounds, guidance, notes – anything to point out to [the NSW government] that it’s really not in the essence of the tax,” she told The Medical Republic.

Unfortunately, according to Dr McMullen, these pleas have fallen on deaf ears.

“We’ve had quite clear wording back from the NSW government that they have no interest in amending this [tax] for medical practices, and in fact we expect a draft practice note with guidance on the payroll tax to be released imminently,” she said.

“They’ve been saying it’s coming out for weeks, and that has quite strict guidelines that in fact, go beyond where any of us had thought this was.”

The only thing that has slowed Revenue NSW down has been the pandemic, something which Dr McMullen feels has lent a false sense of security to many doctors.

“The one saving grace of the pandemic is that it has slowed them down, but it also has sort of delayed the inevitable,” Dr McMullen said.

“It’s left people thinking ‘yeah, look, we’ve heard you talk about payroll tax for years now, but nothing’s happened yet and maybe if I just stick my head in the sand a bit longer it’ll all be okay.’”

She reiterated that AMA NSW believed that now was the time for action, and recommended practices seek legal and accounting advice “from people who have an understanding of payroll tax as it related to medical practices”.

“We are telling you that it’s now time to get advice, and our AMA NSW workplace relations team can help guide people in the right direction, give general information and support practices to make sure that they’re getting advice if they need it,” Dr McMullen said.

While money is a top-line concern, Dr McMullen stressed that action on payroll tax would affect quality of care for patients across the state.

“We have heard from practices [who say that this could] put them out of business, in a time where we already have a strained rural health system,” she said.

Dr Hamish Meldrum, a GP who frequently works in rural NSW, urged fellow GPs to engage with the AMA and RACGP on payroll tax in the lead up to the federal election.

“GPs quite rightly should be concerned and should be talking to their peak bodies, and the peak bodies should be [putting the issue] on the radar during elections,” Dr Meldrum told TMR.

He also pointed out the cruel irony of the situation, in that Revenue NSW’s pursuit of more tax dollars could very well lead to an increase in costs to the state if it forces GP clinics to close.

“For every dollar spent in general practice saves [multiple] downstream dollars for the state government … in some ways, I wonder if it may be counterproductive revenue,” he said.

AMA NSW has also published anonymised accounts of stress and anxiety about the tax from GPs and practice owners on its website.

“I don’t think I am alone in my considerations that if it is not financially viable to run our practice in a manner that permits optimal patient care and outcomes, then I would elect to close our practice entirely (rather than restructuring our systems into a fragmented model with substandard care that then ticks Revenue NSW’s boxes),” one rural GP is quoted as saying.

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