Overview
We have issued four nine articles linked to this series focusing on the employee versus contractor distinction. We have issued an update of Part 5 due to further changes.
In our article ‘Employee or contractor — Payroll Tax considerations — Part 3’ dated 30 September 2022 (DBA Payroll Tax Article – Part 3) we provided a top-level summary of how the payroll tax regime applies to the payment of wages and certain benefits with a focus on the ‘relevant contract’ provisions. That article also covered several cases on the relevant contract provisions such as Commissioner of State Revenue v The Optical Superstore Pty Ltd as Trustee for OS Management S Trust and Ors [2019] VSCA 197 and Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40.
In the past few years there has been considerable developments around Australia on the application of the relevant contract provisions in a number of jurisdictions in relation to the payroll tax legislation on contractors, especially those involved in professional structures such as medical, healthcare and similar arrangements.
Queensland, New South Wales, Victoria and South Australia have issued rulings on the application of payroll tax to medical and similar practices.
Let’s recount what is a relevant contract
As noted in DBA Payroll Tax Article – Part 3:
Section 32 of Division 7, Part 3 of the Payroll Tax Act 2007 (Vic) (PTA) provides:
- In this Division, a relevant contract in relation to a financial year is a contract under which a person (the designated person) during that financial year, in the course of a business carried on by the designated person—
- supplies to another person services for or in relation to the performance of work; or
- has supplied to the designated person the services of persons for or in relation to the performance of work; or …
Thus, a payment to a person is covered by the relevant contract provisions if paragraph (a) or (b) above are satisfied. Relevantly, the State Revenue Office of Victoria’s website states:
This covers most contractual arrangements between two persons each of whom supplies or receives such services in the course of a business.
Payments under these contracts are deemed to be wages (excluding GST). The principal who engages the contractor is deemed to be an employer who is liable for payroll tax on those wages.
The contractor provisions apply regardless of whether the contractor provides services via a company, trust, partnership or as a sole trader.
Section 35 of the PTA provides:
(1) …amounts paid or payable by an employer during a financial year for or in relation to the performance of work relating to a relevant contract … are taken to be wages paid or payable during that financial year.
This provision deems payments for relevant contracts to be wages for payroll tax purposes.
Fortunately, most Australian states and territories have harmonised many aspects of their payroll tax legislation. However, you still need to check the legislation in the appropriate jurisdiction to ensure you comply with the relevant rules; especially as each state and territory has established its own payroll tax rates, thresholds and registration criteria. Given this article is to provide an overview on payroll tax, unless express reference to a particular jurisdiction is made, our comments refer to the Victorian payroll tax legislation.
Queensland
The Commissioner of State Revenue of Queensland issued the public ruling Relevant Contracts — Medical Centres, PTAQ000.6.1 on 22 December 2022 (Qld P. Tax Ruling). The following useful extracts are copied from this ruling:
Application of relevant contract provisions to a medical centre
- . A contract between an entity that conducts a medical centre and a practitioner is a relevant contract under s.13B if all the following apply:
(a) the practitioner carries on a business or practice of providing medical-related services to patients
(b) in the course of conducting its business, the medical centre:
(i) provides members of the public with access to medical-related services
(ii) engages a practitioner to supply services to the medical centre by serving patients on its behalf
(c) an exemption under s.13B(2) does not apply.
…
- If a medical centre engages a practitioner to practise from its medical centre, or holds out to the public that it provides patients with access to medical services of a practitioner, it is likely the relevant contract provisions will apply to the contract with the practitioner unless an exception (i.e. exemption) applies.
The Queensland Government approved an amnesty until 30 June 2025 to encourage medical practices into compliance with their payroll tax obligations. Subject to eligibility requirements and successful application, the amnesty may provide relief for medical practices from payroll tax on payments to contracted general practitioners from 1 July 2018 to 30 June 2025. This amnesty closed on 10 November 2023.
The Commissioner of State Revenue of Queensland issued a second public ruling Relevant Contracts — Medical Centres, PTAQ000.6.2 on 19 September 2023. The ruling confirmed that out-of-pocket expenses and patient fees that are paid directly by a patient to a general practitioner for their services under normal business arrangements will not be subject to payroll tax.
NSW
The Chief Commissioner of State Revenue of New South Wales issued the public ruling Relevant Contracts – Medical Centres, PTA 041 on 11 August 2023 (NSW P. Tax Ruling).
The criteria for the application of relevant contract provisions to a medical centre are the same as what is found in the Qld P. Tax Ruling.
Following NSW P. Tax Ruling, the NSW Government passed the Revenue, Fines and Other Legislation Amendment Act 2023. The Act importantly contains a 12-month relief period on auditing general practitioner practices payroll tax. The pause also applies to both tax penalties and any accrued interest on unpaid payroll tax debts which have been incurred either prior to or at the date of assent.
Additionally, the NSW Government announced in their recent 2024-25 state budget that they will provide payroll tax rebates to general practitioner clinics, as well as retrospectively waiving all past liabilities. Specifically, an ongoing payroll tax rebate will be provided for general practitioner contractors so long as they meet the relevant bulk-billing thresholds (80% in metropolitan Sydney and 70% for the rest of the state) and all unpaid payroll taxes up until 4 September 2024 will be waived, making NSW the first state to issue a complete retrospective waiver.
Victoria
The Commissioner of State Revenue of Victoria issued the public ruling Relevant Contracts – Medical Centres, PTA-041 on 11 August 2023 (Vic P. Tax Ruling).
The section regarding the application of relevant contract provisions to a medical centre are also the same as what is found in the Qld P. Tax Ruling.
In late October 2023, the Victorian Treasurer, promised in a letter to GPs to waive or reduce payroll tax bills for clinics at risk of insolvency where it is in the public interest to do so. The Treasurer stated that waiving or reducing the liability may only be granted where the clinic had engaged with the SRO to reach a settlement in good faith.
In a media release on 22 May 2024, Victorian Government announced the following changes general practice businesses:
- All Victorian general practice businesses will receive an exemption from any outstanding or future assessment issued for payroll tax on payments for their contractor and employee general practitioners for the period up to 30 June 2024.
- A further 12-month exemption for payroll tax for payments to contractor and employee general practitioners through to 30 June 2025 for any general practice business that has not already received advice and begun paying payroll tax on payments to their contractor and employee general practitioners on this basis.
- An exemption from payroll tax for payments to contractor GPs and employee GPs for providing bulk-billed consultations from 1 July 2025.
The media release also provided that there have been no changes to payroll tax obligations for medical businesses.
South Australia
The Commissioner of State Taxation for South Australia issued the public ruling Relevant Contracts – Medical Centres, PTASA003 on 30 June 2023.
Like Victoria and New South Wales, the section regarding the application of relevant contract provisions is uniform with the Qld P. Tax Ruling.
In a media release on the 22 May 2024, the South Australian Government announced a permanent exemption for payroll tax for general practitioners which offer bulk-billed general practitioner services from 1 July 2024 whether the general practitioner is engaged as an employee or deemed contractor. The prior payroll tax amnesty phases out on 30 June 2024.
What’s happening in other jurisdictions?
The other jurisdictions are understood to be monitoring developments and further developments may evolve.
The payroll tax legislation around Australia is broadly harmonised and we recommend that where there is any risk that expert advice be obtained as soon as possible to consider the options. We are aware of substantial retroactive assessments that have issued. Therefore a proactive approach is prudent to minimise further interest, penalties and risk.
Can accountants advise on state/territory taxes
Registered tax agents and certain other advisers registered under the Tax Agents Services Act 2009 (Cth) (TASA) are authorised to provide tax advice relating to Commonwealth taxation law. However, TASA does not cover State or Territory laws such as stamp duty, land tax and payroll tax. Thus advisers who are not a qualified lawyer with a current practising certificate should be careful if providing such advice and make sure they state that they are not qualified to provide legal advice.
Conclusions
A review of contractor arrangements for every business, especially medical, healthcare and similar professional arrangements, is recommended to ensure they are supported by comprehensive written agreements and supporting legal opinion.
The increased activity by state and territory revenue offices highlight the need for appropriate action to minimise risk and costs.
In addition to payroll tax, the following should also be considered:
- PAYG withholding tax
- Superannuation guarantee obligations especially given recent expansion in regards to contractors – refer: The application of SG to contractors clarified — Part 4
- Workcover insurance
- Employee entitlements such as annual and long service leave, unfair dismissal, etc
- Liability issues
DBA Lawyers is well placed to advise and assist with the employee versus contractor distinction especially from the perspective of SG, PAYG, payroll tax and related issues. We have prepared a range of articles in this series to assist our clients to come to grips with these important issues.
Related articles
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- Employee or independent contractor –– PAYG & SG –– Part 1
- Employee or contractor — High Court focus on contract v. multi-factors — Part 2
- Employee or contractor – Payroll Tax considerations — Part 3
- The application of SG to contractors clarified — Part 4
- New ATO guidance on employee/contractor distinction – Part 6
- Employee or contractor – new changes to the Fair Work Act – Part 7
- Reconsidering Incorporated Contractors in an SG Context
- Employee or contractor — SG and the right to delegate — Part 8
- Employee or contractor — ATO issues further decision impact statement on key case – Part 9
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licensed financial adviser under the Corporations Act 2001 (Cth).
Note: DBA Lawyers presents monthly online SMSF training. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400
For more information regarding how DBA Lawyers can assist, visit www.dbalawyers.com.au.
By Bryce Figot ([email protected]), Special Counsel, Shaun Backhaus ([email protected]), Senior Associate, and Daniel Butler ([email protected]), Director, DBA Lawyers
DBA LAWYERS
22 June 2024