The QLD Office of State Revenue released PTAQ000.6.1 – Relevant Contracts – Medical Centres on 22nd December 2022.
In a Nutshell (Our Interpretation)
If applied, the OSR's position in this ruling will see more QLD medical centre entities assessed for payroll tax in relation to independent practitioners providing services from their centres
The ruling does not contain new or altered application of the payroll tax legislation
The ruling is the QLD OSR's interpretation of legislation and recent case law
However, it does delve deeper and provides specific guidance on service entity and tenancy-type arrangements. The examples provide a narrower and stricter interpretation than previously published Office of State Revenue guidance
The ruling implies a “typical” service arrangement, and many tenancy arrangements are viewed as relevant contracts by the OSR and therefore payments will be considered taxable wages and subject to payroll tax
Examples are provided that are reflective of many current medical centre arrangements
Trust account arrangements are likely to be ineffective in isolation
Changing banking arrangements so that the medical centre does not collect fees is not in itself a solution to avoiding payroll tax liability
Medical centres should re-consider if their arrangements with independent practitioners are likely to be classed as relevant contracts
Relevant Contract - Medical Centre Setting
Payroll tax liability is not restricted to situations where an employee-employer relationship exists. When amounts are paid to contractors under a “relevant contract” they are considered to be taxable wages unless a specific exemption applies.
This ruling defines a relevant contract between an entity that conducts a medical centre and a practitioner when:
the practitioner carries on a business or practice of providing medical-related services to patients
in the course of conducting its business, the medical centre
provides members of the public with access to medical-related services
engages a practitioner to supply services to the medical centre by serving patients on its behalf
an exemption does not apply.
The relevant contract provisions were introduced in 2008 to capture payroll tax revenues lost when an entity engaged contractors rather than traditional employees. The relevant contract provisions in NSW, Victoria and QLD are substantially aligned.
Ruling Key Points
If a medical centre engages a practitioner to practice 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 unless an exemption applies.
The majority of medical centres present as providing medical services to the public via the practitioners at their centre. Online booking systems, websites and business models support this representation. This paragraph suggests that if the medical centre presents to the public the provision of medical services, a relevant contract may apply.
A practitioner engaged by a medical centre to serve patients for or on behalf of the medical centre under a relevant contract supplies services to the medical centre as well as to patients.
To date, the argument by many centres is that services are not provided from the practitioner to the centre, only from practitioner to patient. This argument supports the notion that a relevant contract can not apply between the centre and the practitioner's services. In conjunction with para. 13, para. 14 indicates that the practitioner usually would not serve the patients alone but likely serves the centre also.
It does not matter that payments to a practitioner are paid from money received by the medical centre on behalf of practitioners, whether from patient fees or Medicare payments, even if the practitioner is beneficially entitled to that money. When the practitioner’s entitlement is recognised and the money is paid or becomes payable, it constitutes wages for payroll tax purposes.
States the OSR position that the source of the funds (e.g a Medicare benefit payable to the practitioner) and who is entitled to claim/receive, has no bearing on classification for payroll tax purposes.
The source of the funds used to pay the practitioner’s company does not affect the classification of an amount as wages, even if the payment is made from money held in a trust account for the practitioner or the practitioner’s entity.
Suggests that Trust Accounts alone are not sufficient to avoid classification as wages for payroll tax purposes.
‘Third party payments’ of money or other consideration may be taken to be wages paid or payable by an employer to an employee. This provision applies to a third-party payment under a relevant contract that would be wages if paid by an employer to an employee under the contract.
Provides clarification, again, that the source of funds received by a practitioner has no bearing on the classification as taxable wages. This indicates that changing banking arrangements so that the medical centre does not collect fees is not in itself a solution to avoiding payroll tax liability.
The tenancy contract will reference the specific space being leased or licensed and generally includes provisions for fit-out and alterations to accommodate the practitioner’s requirements and services such as building maintenance and signage for the practitioner’s operating hours.
Provides clarification on the narrow terms that would be agreed in a tenancy arrangement that is not deemed a relevant contract.
A tenancy contract is not a relevant contract if the practitioner does not supply work-related services to patients for or on behalf of the landlord. In these circumstances, the practitioner must operate their own independent medical practice responsible for such matters as advertising and attracting patients, providing medical services to their own patients (i.e. not for or on behalf of anyone else), managing patient appointments and records and directly submitting claims for medical benefits to Medicare; with Medicare paying those benefits to the practitioner (or the practitioner’s entity).
Expressly notes the services a tenant practitioner would operate separately and independently to the landlord. Managing of patient appointments, records and submitting claims to Medicare are functions (to date) typically completed by the “landlord” or “service” entity. This is clearly not in line with this ruling’s interpretation of a tenant and landlord relationship.
If a tenancy contract refers to a medical centre as a ‘landlord’ and the practitioner as a ‘tenant’, but in substance the practitioner is providing medical services for or on behalf of the medical centre to its patients, the tenancy contract is more likely to be a relevant contract.
The chosen contract terms will not override the actual operational conduct of the medical centre and practitioner. Essentially, terminology will be looked through to determine the substance of the underlying relationship between the parties. Considering para. 54, those relying on tenancy agreements should seek advice.
A contract between a medical centre and a practitioner may state the practitioner is the principal, and/or the medical centre only provides administrative services to the practitioner. Such clauses do not prevent the application of the relevant contract provisions if the medical centre is able to exercise operational or administrative control over the services provided to patients or is able to exercise operational or administrative control over a practitioner to influence decisions about who practises at the centre, when they practise, and the space within the centre where that occurs. The manner in which the parties describe or label their relationship in contract cannot change the character of the relationship established by their rights and obligations.
Previous examples and paragraphs in this ruling have described operational and administrative control as including the booking of appointments, managing patient records, billing services and directing a practitioner to where they can practice. Given the onerous requirements of not exerting operational and administrative control over patients or practitioners, it appears many current relationships could risk being considered as relevant contracts by the OSR.
The detail in the ruling, in addition to the numerous examples shared, puts all medical centre operators on notice. Previous ambiguous or varied interpretations are effectively squashed by this ruling meaning that there is less confusion over where the line in the sand sits when it comes to audit activity and the OSR's position.
It should be noted that this ruling is the OSR interpretation of legislation and recent case decisions only. However, in the absence of a test case that examines the legal basis for this interpretation, it appears that a medical centre providing services to independent practitioners under an agreement will likely be assessed for payroll tax in relation to the practitioner's services or payments. The onus will be on the medical centre to object to this payroll tax assessment.
QLD Audit Activity
As a result of consultation between the QLD OSR and various interest groups including AMA Queensland, written confirmation has been provided confirming audit activity in General Practice will be limited to the 2022 financial year and onwards. While this is welcome and provides some comfort around the size of potential audit liabilities, it still leaves a large portion of the health practice community exposed and vulnerable to audit liability and penalties moving forward.
There are limited exemptions, which are available on application to the commissioner. In our experience, the majority of medical centres and independent practitioner arrangements do not meet the exemption criteria.
The exemptions are:
1. The practitioner provides services to the public generally
2. The practitioner performs work for no more than 90 days in the financial year
3. Services are performed by two or more persons
All health practices should re-engage with legal and accounting experts knowledgeable in payroll tax application to health and medical centres.
GrowthMD is working with other leading medical accounting and legal advisers in QLD to provide clear communication to health practice owners over the coming weeks and months.
While we have always operated a payroll tax risk minimisation strategy for our clients, looking ahead we intend to work through various business model changes and reporting options available. Further communications will be circulated to our clients shortly.
This information is general in nature. We encourage all readers to obtain specific legal and accounting advice. This information is based on our interpretation of the content examined and may change as further information becomes available.