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Medical Practices – What Are My Payroll Tax Liabilities?

Medical Practices – What Are My Payroll Tax Liabilities?

“I am only liable for payroll taxes in relation to my employees, right?”
– famous last words of a Medical Practice owner.

 

Payroll Tax … is your Healthcare Practice or Service Entity Arrangement in the sights of the revenue authorities?

A common misconception of business owners is that Payroll Tax is only payable in relation to wages.  However, the reality is that other payments, such as payments to contractors, may be subject to Payroll Tax as well.

The Courts have provided updated guidance relating to the interaction between Payroll Tax and common medical practice business structures.

 

Let us set the scene

A Business is only liable for Payroll Tax if its taxable wages exceed a certain cap, which varies between each State and Territory. However, when determining a business’ taxable wages, a commonly overlooked payment included in this calculation is payments to contractors.

Payments made to contractors are easily captured as the definition of taxable wages under the Payroll Tax Act includes, ‘a payment made to an entity that provides you with services or that you provide services to’.

It is not only payments to individual contractors that are caught. Payments to contractors who provide their services to a business through an entity such as a trust or company can also be included in the businesses’ wages for payroll tax purposes.

There are a number of exceptions to this definition, which are aimed at excluding genuine contractor payments.

 

What’s the issue for medical practices and service entities?

It is not uncommon for many medical practices will not look to formally employ medical professionals but will instead seek to engage the professional on a contractor basis.

Further, it has been increasingly popular for medical professionals to seek a third-party services entity to provide staffing and administration services. Such engagements alleviate these administrative burdens, allowing the professional to primarily focus on treating their patients.

However, although the professional is providing their services directly to patients, they may also be providing services to the medical practice. In the event of the latter, payments made for these services are likely to be taxable wages.

Now to answer your deep-burning question; will payments to my contractors be included in my taxable wages?

As always, it is not easy to provide a one-size-fits-all answer, as it will depend on:

  1. The terms of the contract between each of the entities; and
  2. The facts of each business’ day to day activities.

A review of the terms of the contract can reach as far as; how many days are the professionals required to work each week? Are they subject to the medical practice’s protocols? Is there a restraint or non-compete clause in place?

 

What should I be doing?

It’s important not to panic! The payroll tax rules need to be considered for each contractual arrangement that you or your clients have.

The best starting point is to review each of the current contractual arrangements to check whether they in fact reflect the arrangement – ie is it a medical practice or a service entity?

Once you know what type of arrangement you or your clients fall under you can update the contracts where needed and consider whether any further action is needed for payroll tax.

We can help! If you have any further questions please reach out to our Head of Legal, Jodie Robinson at jodie@abalegalgroup.com.au.

 

Co-written by Ally Evans.

Did you enjoy this? Check out our other tax knowledge shares here.
Jodie Robinson
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