On 12 February 2020, the High Court of Australia supported the judgment delivered in Commissioner of State Revenue v The Optical Superstore Pty Ltd [2019] VSCA 197, under which payroll tax was applied by the Victorian State Revenue Office ("SRO") on payments made by an optical retailer, for services provided by an optometrist, engaged as a contractor. That is, the High Court refused Optical’s special leave application.
Medical and healthcare centres and clinics in Australia using service entities to engage practitioners as contractors, such as medical practitioners and other healthcare professionals (for example, dentists, optometrists, and physiotherapists), must comply with legislation governing payroll tax.
The SRO considers that fees earned from the public in relation to services provided by healthcare providers as contractors to medical clinics must attract payroll tax.
What should medical and health clinics do?
- Consider and obtain industry experienced legal advice on their legal agreements with all medical and health professionals engaged in the business.
- Consider the nature of the daily operational dealings with patients in the business.
- Consider the business' arrangements for collection and allocation of patient fees and Medicare rebates, payment of the business' costs to run, and payment of any remuneration or other funds to healthcare professionals and relevant support staff.
- Consult a legal advisor on each of the above points in relation topayroll tax obligations.
The SRO's current focus is on how medical centres have structured their arrangements with healthcare professionals and the applicability of payroll tax on any payments made to the practitioners by those practices. Payments made to the medical centres by the practitioners, however, are different.
Optical Superstore Case
In the case of Optical Superstore, the SRO raised amended assessments for payroll tax in relation to payments made by Optical Superstore to optometrists who were providing services to the public from the Optical Superstore’s facilities.
The arrangements in the case will be familiar to medical and healthcare providers such that Optical Superstore, for example:
- owned and managed an optical store (a medical centre or clinic);
- payments were collected from customers (being, the public) in relation to services provided by the optometrists; and
- parts of the payments collected by the optical store went to the optometrists (the healthcare practitioners).
The case was heard and ultimately appealed to the High Court, where it was decided that the payments to the optometrists represented payment for work performed under contractor provisions of payroll tax law. Further, the arrangements involved relevant contracts for the performance of work by the optometrists. The work of the optometrists also facilitated the sales of optical products by the Optical Superstore. By this reasoning, the payments to optometrists were deemed to be wages and subject to payroll tax.
What should medical and health centres consider in the given scenario?
Commercial entities engaging in similar arrangements must carefully review with appropriately experienced and qualified professional advisers, at least the following:
- the language of all service agreements between medical and health practitioners and the centres with which they engage;
- the management arrangements of the centres on a day-to-day basis (for example, management of patient fees, collections, treatment of income and expenses between the relevant parties, service fees and banking arrangements); and
- application of any exemptions where the arrangements constitute relevant contracts.
It is critical to remember that, from a payroll tax compliance perspective, it is not just about the form of the relationship in any agreement between the parties but also adherence to that agreement and the spirit of it by the parties in practice.
How can I protect my medical or health centre business?
To protect your valued business and assets, it is important to seek professional advice and to put in place appropriate measures to avoid leaving your organisation open to risk and liability.
For any of your medical or healthcare related legal requirements please contact us on +61 3 9822 8588 or email us HERE.
