What is Payroll Tax?
Payroll tax in Australia is a state or territory tax calculated on the total wages paid by an employer each month. Each state and territory has its own thresholds and rates, and employers must register for payroll tax if their total wages exceed these thresholds. The concept of a ‘deemed employee’ and ‘relevant contracts’ is crucial in determining payroll tax liabilities. A deemed employee is someone who, while not traditionally classified as an employee, is treated as one for payroll tax purposes due to the nature of their work arrangement. Relevant contracts refer to agreements where payments made under the contract are considered wages, thus attracting payroll tax.
Further Exploring ‘Deemed Employees’ and ‘Relevant Contracts’
A deemed employee differs from a traditional employee in that they might be engaged as independent contractors but are treated as employees for payroll tax purposes due to the nature of their work. This classification ensures that payroll tax is applied consistently, regardless of the formal employment status. A relevant contract is one where the contractor is essentially providing their labour and skills, and the payments made under such contracts are deemed wages. This means that even if a worker is not an employee in the traditional sense, the payments made to them can still be subject to payroll tax if the contract meets certain criteria.
Where the Concern Started for Medical Practices
Recent concerns for medical practices began with the case of Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40. In this case, the New South Wales Court of Appeal ruled that payments made by a medical practice to doctors were subject to payroll tax. The court found that the agreements between the practice and the doctors were relevant contracts, and the payments made to the doctors were deemed wages. This decision highlighted the need for medical practices to carefully review their contractual arrangements with doctors.
Following this, the Queensland Revenue Office issued Public Ruling PTAQ000.6.3, which clarified the application of payroll tax to medical centres. The ruling explained that payments made under relevant contracts to practitioners, including doctors, dentists, and other health professionals, are subject to payroll tax. This ruling emphasised the importance of understanding the payroll tax implications of contractual arrangements in the healthcare sector.
What About South Australia’s Position?
On the 22nd of May 2024, the Government of South Australia declared a modification to the Payroll Tax Act 2009 (SA), resulting in General Practitioners being exempt from payroll tax on earnings from bulk billed services starting from 1 July 2024.
It is crucial to note that this exemption is limited only to general practitioners for their bulk billed services and does not extend to other medical professionals or specialists. In instances where practices offer both bulk billed and privately billed (i.e., paid out-of-pocket) services, the exemption applies in proportion to the amount of services that are bulk billed.
To receive this exemption, General Practices must have registered for payroll tax by the deadline of 30 June 2024 and lodge an estimate by July 28, 2024. Although this offers some alleviation for past payroll tax duties, it does not resolve liabilities that will arise after this date, indicating that such practices will incur a new, and often substantial, payroll tax burden beginning 1 July 2024.
Other Medical Professionals and Specialists
In a positive move, the Government has stated that it will abstain from enforcing payroll tax on payments to contracted medical experts and dentists until 30 June 2024. This applies to medical experts who are recognised by the Medical Board of Australia and to dentists accredited by the Australian Health Practitioner Regulation Agency.
To receive this exemption, these medical and dental practices must have registered for payroll tax by the deadline of 30 June 2024.
Impacts on Patients
Increases in payroll tax can ultimately impact patients through higher fees. Medical practices may pass on the additional costs to patients, leading to increased consultation fees and out-of-pocket expenses. This can affect the affordability and accessibility of healthcare services, particularly for those relying on bulk-billing.
Key Dates
- June 30, 2024: Deadline for impacted practices to register for the amnesty.
- July 28, 2024: Deadline to lodge an estimate.
Key Considerations
While the tax is not payable immediately, practices need to make provisions for the tax along the way. Proper provisioning early on is essential to ensure that funds are available when the tax becomes due. If you need assistance in understanding the changes or how it applies to you, please reach out to the team at Bartons.