A magnifying glass on the Payroll Tax Exemptions: Taking a close look at your Practice
Many practices are now facing the reality that they must pay payroll tax. In recent years, we have seen a shift from payroll tax rarely, if ever, being payable on payments to independent doctors, to it arguably becoming more likely than not. Despite the overall outcome, one benefit for practices that does stem from the Rulings issued by the State Revenue Offices, is increased clarity. Exactly how clear the situation is depends on the State or Territory you are in, however the exemptions are relatively clear which, for many practices, offers more confidence in the way forward.
What’s the problem?
Until recently, payroll tax on payments to independent doctors was rarely, if ever, a tax contemplated or expected when starting or running a medical practice. The imposition of payroll tax has meant many practices need to increase out-of-pocket patient fees, or simply ‘bear it’. This has led to practices questioning and reassessing their financial viability and facing the scary reality of potential practice closure.
Naturally, practices are looking for certainty when addressing these problems. Practices are also looking for a way to be financially viable, sustainable and law-abiding. They are also looking at how to plan for the future, which may involve either wholly absorbing the payroll tax liability, avoiding it or reducing it.
Payroll Tax Exemptions: some certainty
For many practices, it has become clear that payroll tax is payable generally, however exactly how much and on which payments, is still up in the air. The payroll tax exemptions are a (comparatively) clean-cut way to carve out payments for payroll tax purposes and minimise the payroll tax payable.
As we have alluded to, there are certain circumstances which may exclude contracts from being a ‘relevant contract’. Generally, the three exemptions that are most likely to apply to a medical centre include:
1. the 90 day exemption, where the independent has not worked more than 90 days in a financial year;
2. the exemption where the Commissioner is satisfied that the services are of a kind ordinarily performed for the public; and
3. the exemption where the independent employs another person to engage in the delivery of services.
Applying the exemptions in your Practice
Some of these exemptions are more straight forward than others. In particular, the 90-day exemption is clear that if there is evidence that the independent doctor has not worked for your practice for more than 90 days in the financial year, then your practice could likely claim that exemption. As with everything legal however, there is always a ‘but’. There are still other circumstances such as what is meant by a ‘day’ that may mean some independent doctors are over the threshold.
The services to the public generally exemption is more difficult to navigate. For example, many practices may expect that an independent doctor, by way of their independence, would be providing services to the public generally. Unfortunately, it is much more complex than that and the Commissioner will consider various circumstances specific to your practice. For example, it will depend on factors such as whether the doctor is engaged elsewhere, as well as the frequency and nature of these engagements.
The ‘two or more persons’ exemption exists where services are performed by two or more professionals under the one contract e.g. if an independent doctor engages a nurse or their own receptionist/ administrator to assist them to deliver the medical services to the centre.
One overarching consideration to remember when assessing these exemptions and whether they currently, or could, apply to your practice, is that there are anti-avoidance provisions in the Payroll Tax Acts which require the contract to not have been entered into with the intention of avoiding or evading the payment of tax.
There are varying levels of evidence to be collected, assessed and stored by the practice to prove that these circumstances leading to the exemptions exist, and have existed for the relevant period.
The relief
Depending on where your practice is located, your exact payroll tax obligations will vary. Different states and territories have announced relief measures both retrospectively and prospectively, so it is important to get across these and how they may alleviate some stress in your practice. For example, exemptions for general practices meeting bulk-billing thresholds.
What should you do now?
You Legal understand the factors that may be considered by the Commissioners when determining whether a contract will be exempt for payroll tax purposes.
We offer a tailored guide for your medical practice to help you navigate the three exemptions that are most likely to apply. This guide outlines in more detail, exactly what the exemptions are and what will need to be considered. It includes practical checklists to ensure your practice has obtained the relevant information and documents to prove the exemptions exist.
You Legal can also assist in navigating this developing area of law more generally - to find out how we can help your practice or to purchase the Guide, contact us here.