Case Study Payroll Tax For Medical Centres

Thomas and Naaz: Payroll Tax for Medical Centres

Thomas and Naaz Pty Ltd v CCSR [2021] Case Study decided in the New South Wales Civil & Administrative Tribunal.

There has been much talk about this case over the past few years amongst our clients and other stakeholders in the medical and health business industry. So, here, we put it in the spotlight.

Thomas and Naaz Pty Ltd owned 4 general practice medical centres across Western Sydney and so the adverse payroll tax assessments the owners received from Revenue NSW which were the subject of this case were significant (an aggregate of close to $800,000).

The key terms of the written agreement in place between the medical centres and the doctors practicing there included that the doctors agreed to:

1. provide services on a five day per week basis, including weekend rotation;
2. meet roster commitments;
3. provide advance notice of planned vacations (limited to 4 weeks in a 12 month period, subject to approval of medical centre);
4. promote the interests and business of the medical centre including not channelling patients away from the medical centre;
5. retention by the medical centre of property in business records;
6. payment of hourly rates by the medical centre in certain circumstances;
7. all patient fees and Medicare rebates being received into the bank account of the medical centre;
8. abide by the medical centre’s operating protocols and to complete all necessary documentation for that purpose; and
9. a restrictive covenant, which would become operational on the Doctor leaving the medical centre, having an “exclusion zone” of 5 kilometres from the medical centre for a period of 2 years after the doctor’s departure.

The Tribunal found that:

• such terms (together – it was not any one or few) indicated that the agreement secured the provision of services provided by the doctors to patients of the medical centres.
• such services were a necessary part of the medical centres’ business - the doctors provided those services not only to patients but also to the medical centres. Essentially, without the medical services provided by the doctors to their patients, the taxpayer could not operate its medical centre business.
• the medical centres had a medical centre business (rather than a purely administrative and management service business) and, doctors’ services provided were of a kind ordinarily required by the medical centres.
• SO, all patient fees and Medicare rebates received into the bank account of the medical centre then transferred to practitioners were deemed to be PAYMENTS to the doctors subject to payroll tax.
• in interpreting the contractor provisions in NSW payroll tax legislation, it was not the capacity in which the “employer” received the amount which was paid to the “employee” nor the ownership of the funds transferred (i.e they belonged to and were beneficially owned by the doctors) that was important but more the notion of amounts ‘paid or payable … for or in connection with work’.

So, what are the potential implications to a medical centre if it gets it wrong?

• Breach of the Fair Work Act

Sham contracting and underpayments – investigation and prosecution by the Fair Work Ombudsman with large financial penalties - up to $12,600 for an individual and $63,000 for a corporation.

Plus underpayments / unpaid employment entitlements claims from doctors.

• Adverse tax consequences (unpaid payroll and PAYG withholding tax, penalties and interest)

Historical unpaid payroll tax assessed on all payments to many practitioners can be significant.

A deemed employer is required to withhold income tax from payments to employees and remit to the ATO.

Plus interest and penalties, all of which directors can be held personally liable for.

• Unpaid superannuation guarantee contributions, penalties and interest
• Workers’ compensation claims

Medical centres can be held liable for work related injury and illness for doctors, where they may or may not have taken out sufficient insurance to cover it.

Contact Burke Lawyers on +61 3 9822 8588 if you this case study has raised any concerns regarding your medical centre or you would like our assistance with Payroll Tax.  Our Medical and Healthcare lawyers are here to help.