From January 1 2025, an additional practice fee will be added to standard consultation fees because of Payroll tax
Revenue NSW has confirmed that it will broaden its application of existing payroll tax laws to encompass medical practices operating under the ‘service entity’ model. General Practice business models vary widely, however typically involve general practices leasing out spaces to GPs with the practice providing administrative support (reception services, medical consumables etc). The practice collects consultation income on behalf of doctors and then distributes it to individual doctors after deducting a service fee. Under the provisions of the Payroll Tax Act 2007 (NSW) payments made under relevant contracts may be considered wages for the purposes of payroll tax.
The broader application of payroll tax laws would see the distribution of these fees being considered to be payments for the performance of work by the individual doctor on behalf of the medical practice rather than individual doctors providing services directly to patients, being paid by the patient and acquiring services (including the collection of fees) to run their medical practice from the service entity.
The decision by the NSW’s Supreme Court’s Court of Appeal to reject an application on the tribunal ruling on the Thomas and Naaz Pty Ltd vs Chief Commissioner of State Revenue created significant uncertainty within general practice. This decision has set a precedent on the way payroll tax is administered in general practice by state and territory revenue offices.
A broad application of payroll tax threatens the viability of general practice and will adversely impact patient access to quality general practice care. It also significantly diminishes the Commonwealth Government’s initiatives that aim to support general practice reform.
Patients are often unaware that GPs generally operate as contractors rather than employees without benefits such as annual leave, sick leave or a superannuation guarantee.
We believe it is unfair for GP contractors without any of the benefits afforded as employees to be treated as such for the purposes of payroll tax obligations to their "employer". Independent practitioners operate as sole providers, they are already subject to income tax obligation with the Australian Taxation Office (ATO).
However, Revenue NSW's position that medical practices may be liable for payroll tax on payments made to contractors is causing a significant increase to the overheads in running a medical practice.
Some smaller group practices are choosing to amend their contracts with GPs or changing the flow of funds so that their business may not strictly fall under the 'service entity' model. Whether these measures may allow practices to absolve themselves of payroll tax obligations to Revenue NSW remains unclear. A risk remains that these practices may be found to be liable for payroll tax if audited by Revenue NSW.
Our parent organisation Qualitas Health has chosen to impose an additional practice fee to the patient levied solely to meet the obligations of paying this Payroll tax in the light of Revenue NSW's decision.
Please note that this fee neither benefits the contractor GP nor the practice financially.
The additional practice fee is $5 for level A and B consultations (standard 15 minute consultation), $12 for level D (>40 minute consultation) and $10 for most other items.
Payroll tax has implications for all medical practices, but general practices have the potential to be hardest hit.
The financial stability of general practice has been under threat for years and recent payroll tax decisions will push some practices to consider whether they can continue to remain open.
NSW is already facing a GP-shortage, particularly in rural and regional Australia. Payroll tax will exacerbate challenges to healthcare access, if some practices are forced to close their doors.
The Queensland State Government has exempted GPs from this additional tax.
https://www1.racgp.org.au/newsgp/professional/queensland-gps-immediately-exempt-from-payroll-tax
We would encourage you to write to our local MP in Oatley to express your opinion about the impact of Payroll Tax on our local General Practice. I have already done so.
https://markcoure.com.au/contact
RACGP have provided a template letter to help with this:
RACGP Position Statement on Payroll tax for independent practitioners - https://www.racgp.org.au/advocacy/position-statements/view-all-position-statements/health-systems-and-environmental/payroll-tax-for-independent-practitioners
AMA (Australian Medical Association) explanation regarding Payroll Tax - https://www.amansw.com.au/payroll_tax/
Revenue NSW guidance on Payroll tax and the medical services industry - https://www.revenue.nsw.gov.au/taxes-duties-levies-royalties/payroll-tax/industry-specific-guidance/medical-services