Stop calling yourself a “Medical Centre”

According to the latest tax rulings for taxation and medico-legal reasons, naming your practice a “Medical Centre” or “Clinic”or “Practice” may be a bad idea. In this article we will explore the bone chilling details as to why from a Federal Court judge. Remember practice branding is only one very important part of the solution. A holistic view remains critical.

You should be promoting your doctors and your doctors should be actively promoting themselves on their own separate website.

The QLD tax ruling and High Court contractor ruling reveals fresh new legal arguments by the tax office and malpractice litigators that expose service entity owners i.e. commonly referred to as practice owners to payroll tax but more significantly to income tax if GP or Healthcare Contractors are deemed to be employees for taxation purposes. 

The Ruling also provides rather simple exemptions if you want to comply immediately. All you need to do is prove it! 

Overnight practices could find themselves paying $7,000 a month for a full time GP’s PAYG, Super, Workcover, Insurance plus other employee on costs. Alarmingly they can go back 5 years with penalties.

The GP Contractor would instantly lose their ABN and GST registration and their tax deduction on any service fees charged. They would have to nurse a big tax audit problem of their own.

Unsurprisingly, the most common thing I say to practice owners and practitioners who have contacted me about payroll tax is that their payroll tax concerns are not the real problem; but that it is the recent ATO contractors ruling.  

It can be fixed in four steps

Step 1 Independent practitioners must have their own website and actively advertise. 

The High Court has ruled this is a key step to avoiding payroll and income tax problems. 

Step 2 Ensure you have an ATO service entity structure – Rename your Practice!

Ensure it meets the ATO service entity ruling that refers to the 1978 Federal Court Phillip Case. Unfortunately, over the decades the medical corporations have muddied these waters, which is why we have this problem today.  

For many this may mean renaming or amending your practice on your website, logos, stationary and contracts as either a “Medical Complex” or Precinct or Medical or Healthcare Consulting Suites. The name must connote the purpose of your entity being a destination point and not imply the provision of clinical services.

Read on for a chilling deep dive into this most critical step. Follow steps 1 and 2 and implement it correctly.

Step 4   Do not attempt to DIY

Follow the AMA WA Chief Operating Officer Amit Vohra’s advice to their members. They advise practitioners to seek legal and accounting advice immediately. 

How do I choose the right adviser? 

You would be right if you feel finding the person and solution who’s right for you requires a very subtle alchemy of legal and accounting advisers from the outset.

Obtain experienced medical and health legal and taxation advice from advisers who can actually sign off in writing on the 21 key areas of law and accounting that will help you comply with steps 1, 2, and 3. It is not enough to have a commercial lawyer to review your agreements; and you should obtain tax law advice from your accountant and a tax lawyer, who is familiar with your arrangements.

If you do not know how to cost effectively choose the right adviser, click HERE. This article may save you from wasting a lot of time and money you do not have.

Stop putting things off; you’re running out of time because of the new technology that enables  tax offices to share and match data. 

Against the backdrop of recent High Court contractor rules, the current national medical and allied health professional body advice to politicise the taxation of practitioners may do more harm than good.

This has only drawn more attention to the fact that there is widespread non-compliance. It is the tax office’s responsibility to enforce the law using evidence. This is what is new. The laws are not.

It would be unfair to blame the regulators and feel like a victim. Do something about it. 

Do not be surprised if the Authorities are building a tax audit workforce. In particular, I have received a lot more reports of audits and fines in QLD, NSW, and Victoria. Many speak of having to liquidate (commence voluntary administration proceedings) their practices because they cannot afford to continue.

Remember, you have no one but yourself to blame if you are a practice owner or practitioner and you do an independent check on your arrangements. It is a criminal offence not to comply with tax laws. There are now clear High Court rules and public rulings. 

Why does my accountant have to be involved?

The ATO has asked the accounting profession to keep an eye on their client’s contractor arrangements. If you don’t have a lawyer sign off on your plans, you are automatically seen as a riskier business. Accountants would be held liable for being negligent if they did not ask more questions about your arrangements in future tax years.

Remember, the courts will rely mainly on your external accountant and not your lawyer, who is a member of a professional body such as the Chartered Accountant or CPA that will be scrutinised and to a lesser extent, your practice manager and you.

What is the optimum arrangement Employee, Contractor or Tenant Doctor (service entity arrangement)? 

Since 1978, the Service Entity (i.e. Tenant Doctor™) arrangement is the most viable and optimal arrangement in relation to commercial liability and taxation purposes. Nobody wants to be sued for a practitioner’s malpractice claim or misconduct. Insurance will not always cover owners and if so the premiums and conditions can be eye-watering and or invasive. 

For many practitioners they dislike the additional oversight and pay decrease to compensate for the additional employee or contractor on costs.

There are only three options when engaging a practitioner: either as an employee, an independent contractor (medical corporatisation did muddy the waters when you read on), or a traditional service entity arrangement as endorsed by the Federal Court and ATO, which we refer to as a Tenant Doctor™ arrangement.

Due to the recent High Court decision, any independent contractor arrangement will be a significant tax and regulator target for years to come.

The Tenant Doctor arrangement appears to be the safest, however, when you read the details below, how you set up and run the practice from marketing to how the receptionist answers the phone, may readily get you into trouble. 

The good news is that it can be fixed. To be sure you will need to find a lawyer and accountant to sign off under the ATO’s new safe harbour rules (we are happy to depending on your arrangements) that they are not employees. Care needs to be taken not to call them contractors, as this seems to leave the door open. I will delve into what I mean now.

Do not name your practice a “Medical Centre”

The QLD payroll tax ruling has highlighted something new that I have not seen before. It is a new angle of attack.

With a recent High Court Ruling in their hand, they have an alarmingly clear focus on the characterisation of whether your practice operates like a “Medical Centre” compared to a service entity that only provides facilities and support services to practitioners.  

What’s the ‘matter’? What’s in a name?

Everything seems to be about optics. Getting your practice name right is extremely important, but only part of the solution. The QLD Medical Centre payroll tax ruling has made it less than clear it is your mistaken identity that is getting your practice into tax hot water.

The sheer numbers of medical payroll tax audits and media reports are fueling an unnecessary fear of imminent insolvency among practice owners.

It is overwhelmingly clear that this basic understanding is often overlooked by lawyers and accountants, especially when it comes to service entity arrangements, or what we refer to as Tenant Doctor ™ i.e., a service entity or landlord-tenant type of relationship with your customers. 

It may come as a shock, but under the Tenant Doctor™  model, if you believe you have a service entity arrangement, you do not have a practice but a business that supports a professional practitioner who is a sole trader in the practice of medicine or in practice. 

There is a significant difference between the roles and purpose between the a medical or general practice and a service entity. I have raised in earlier articles.

A medical practice, for example, could be run by a tenant doctor (sole trader practitioner) who is regulated by their relevant professional body and AHPRA

Most of the time, they sign a contract with the service entity to help the Tenant Doctor™ manage facilities and the practice. 

On the other hand, a traditional service entity doesn’t have any direct “professional responsibilities” that are set by a professional body or a professional body regulator. 

Any employed and regulated staff who are members of a profession, such as nurses, will need to follow their professional body’s rules and AHPRA’s. They work for their employer, the service entity, as they direct. On the contrary, a “Tenant Doctor ™” is not answerable to a service entity and is a customer of the service entity. 

Borrowing from the Gatsby case, the Court asked what is a Court. Like the movie, not getting it right could end up in an avoidable tragedy. 

Interestingly, these same principles could be asked to determine what is a “Medical Centre” for payroll and income tax purposes.  

This is a new angle of attack created by the recent “QLD Medical Centre” payroll tax ruling. Thankfully, Court rulings, unless they are required by statute, usually have the final say.

The Gatsby case asked three important questions, that could easily apply to your “Medical Centre”

Outward-facing element(s) 

For example who is being advertised to the general public the service entity or Medical Centre or the individual “Tenant Doctor“?    

  1. What was the body called for example do you call yourself a “Medical Centre” or “Service Entity” who are the participants; and  
  2. What purpose are they being called for example do you call yourself a “Service Entity”  and the practitioner a “Tenant Doctor” what do they do; and 

Inward-facing elements.

For example, does your Contract reflect a customary Conduct between the parties?

       3. Do they have legal authority is there a binding legal agreement that proves why this relationship exists?

Specifically, the Healius ruling mentioned below by the QLD Medical Centre Payroll Tax Ruling jumps at this point by drawing a nexus between a Medical Centres’ arrangements, regardless of what contracts you have by questionably deeming your arrangements for payroll tax purposes. 

The ruling referred to the Healius Ltd v Commissioner of Taxation [2019] FCA 2011 . This is an important but overlooked Federal Court case by legal and accounting advisers. If you take a closer look it  referred to the Ed Bateman’s Primary Health Care (legally known as Idameneo Pty Ltd) trademark case Primary Health Care Limited v Commonwealth of Australia [2017] FCAFC 174. The Federal Court determined the characteristics of a “Medical Centre” which the payroll tax office may seek to rely on when prosecuting future cases. 

Specifically, in a later tax case, the Court ruled: 

 Paragraph 42 (A)

“The primary judge erred by adopting an unduly narrow conception of the nature of the business conducted by Idameneo.” The primary judge treated the business as the provision of administrative and other services to practitioners when in fact it involved the provision of medical services to the public from the Centres”

Over the years, there has been a convergence of laws at play. 

In order to avoid a contractor income tax or payroll tax liability, two key recurring aspects are: 

1. Who is holding out i.e. advertising services to the general public?

The first is how the practice held out to the general public who was offering the medical and healthcare services. Was it the Medical Centre or the treating practitioner?

It was argued that the Medical Centre held out to be offering medical services to the public,because of how they promoted the “Medical” nature of their business in their business name. If you are seeking a payroll and income tax exemption this is why we keep saying every practitioner should set up their own website.

2. How is the Medical Centre managed and operated?

Secondly, how is the Medical Centre operated? The Court totally disregarded the expensive and clever contracts drawn up for this billion dollar medical centre listed on the Australian Stock Exchange. 

They asked what was really happening? Do the contracts say what they actually do!

These are my two key takeaways from the case: 

Your qualified external or internal accountant and or legal adviser is either an asset or a liability!

Firstly, the court heavily examined the accountant and referred to him as a member of the Chartered Accountants of New Zealand and a trusted witness. They questioned him about the workflow and operations of the practice, along with the practice’s owner and founder, the late Dr. Ed Bateman, who is familiar to many readers.

If this describes how you run your practice you may have a big tax problem

Secondly, in chilling detail after cross-examining the late Ed Bateman’s Primary Health Care, i.e., Indamenco’s accountant, despite all the clever and expensive accounting and legal advice, the Federal Court struck down many common arguments used by tenant arrangements, simply because it were not run the way they said they were. 

I quoted key areas described by the court to illustrate. This should help in reviewing your own arrangements.

Interestingly, the court determined the applicant was a “Medical Centre” despite no clear signage at any of the Primary Healthcare locations. This is consistent with the medical cost negligence liability case 2001 Hollis v. Vabu Pty Ltd.  High Court independent contractor decision. 

The factual evidence provided from the daily operations contradicted and self-incriminated their position. 

The trade mark case Primary Health Care Limited v. Commonwealth of Australia [2017] FCAFC 174 (“Primary Health Care”) dealt with the key issue of holding out or advertising medical and health care services to the general public. 

This is why I believe, based on my observations, that practices may need to change their business name and that independent contractors and sole traders need an independent website separate from the practices (i.e., a service entity). This should be correctly described on each website, in contracts, stationary financial statements, and tax returns. 

Below are extracts from the Primary Health Care case: 

TRADE MARKS: application for leave to appeal – Registrar of TradeMarks refused registration of trade marks – primary judge dismissed appeal – whether relevant services were indivisible or indistinguishable from the provision of clinical care to patients – whether trademark inherently adapted to distinguish the services – ordinary signification of phrase ‘primary health care’ – identification of target audience for a trade mark – whether trade marks used to distinguish the relevant services. – whether trade mark not capable of distinguishing appellant’s goods or services – whether trade marks likely to deceive or cause confusion – whether trade marks contrary to law – appeal dismissed”

The following refers to the logo and branding i.e. trademarks Primary Healthcare tried to protect. 

These are the services Primary Health Care they said they were providing/advertising to the general public under this brand name

Paragraph 2

Paragraph 3 

The applications initially related to services within classes 35, 42 and 44 (which includes medical services), but subsequently were confined to class 35, the services being defined in the specifications as:
Class 35: Medical centre business management; medical centre business administration; service provider to medical professionals, namely provider of: administrative support services, billing and invoicing services, reception and telephone answering services, patient booking services, patient file management services including management of access to patient files, typing services, account-keeping and book-keeping services, preparation of business reports, systemisation of information into computer databases, professional business consultancy, computerised file management, business and information management services, ordering services, processing of purchase orders.

Paragraph 11

“(the accountant) gave evidence at a more detailed level about the operation of the medical centres. They had long opening hours, mostly from 7am to 10pm, although in some cases they operated 24 hours a day. Although there were exceptions to this, by and large the doctors at the medical centres only bulk billed, that is to say, they only charged the scheduled fee recoverable under Medicare for the service provided. In practice, this meant that patients were not obliged to pay anything. 

Further, the medical centres involved an integrated model which provided not only general practitioners, but also other health care professionals such as dentists and physiotherapists, together with pathology collection, pharmacy, day surgeries and diagnostic imaging. Another important feature was that it was not necessary for patients to make an appointment.

Paragraph 16 

The accountant/chief financial officer  “gave evidence as to how fees of this kind were calculated. The basic principle was that the fees were determined by the late Dr Bateman, the Applicant’s former chief executive officer. …s the chief financial officer, was familiar with what Dr Bateman’s methods had been and he gave evidence about them. There was no precise formula but there were various relevant factors. One was the number of hours the doctor promised to work at the medical centre. A doctor who agreed to work for 50 hours per week for five years might receive $400,000 by way of lump sum while 40 hours for the same period might only net the doctor $300,000. Hours could be reduced during the life of the agreement, of course, but there then needed to be a refund of a corresponding portion of the lump sum. This refund obligation is likely in many cases to have made seeking a reduction in hours (and the duration of the agreement) less attractive to the doctors. A second factor for Dr Bateman was the size of the doctor’s annual billings in their own practice prior to joining the medical centre together with Dr Bateman’s rather unsentimental assessment of how effective and efficient the doctor was. Although (the accountant) did not say explicitly say why billings mattered I think it may be inferred that a doctor who could demonstrate on an historical basis a proven enthusiasm for the generation of fees was a doctor who would benefit Idameneo given that the fees it earned from the doctor—as will be seen—were a function of the doctor’s own earnings.

Paragraph 27 

“the reason why corporate service providers, like Primary Health Care Ltd, use generic branding for the medical centres they service is pragmatic; the service provider does not want to hold themselves out as providing medical care to patients because, as Mr Bateman put it, “we don’t want the liability attached to that… and doctors don’t want us to be involved in their practice to that extent.”

Paragraph 28 

“These facts are important to the resolution of all aspects of the disputes between the parties. So too is the fact that, as will be apparent, the Services are but one part of the applicant’s overall activities which enable the operation of its medical centres. As such, it is not the case that any GP “purchases” the Services from the applicant. No GP can do so. A GP can enter into a contract with a subsidiary of the applicant in which the GP agrees to practice from one of the applicant’s fully equipped, staffed and supplied medical centres at which a range of services will be available to the GP, including but not limited to the Services, in exchange for a fee which is calculated as a percentage of the fees banked by the GP as a result of the GP’s practice.”

Paragraph 37

“The applicant submitted that other examples supported the fundamental difference between the Services which it offers to health professionals and the clinical services which health professionals offer to patients, being:

(a)          some barristers engage bookkeepers to provide services but that does not mean that those bookkeeping services are “inextricably bound up with” the legal services provided by the barrister, nor do they “critically enable” the provision of those legal services;

(b)          serviced offices often provide cleaning and receptionist/telephone answering and appointment services, but that does not mean that those back office services form part of the business of the entities that operate from the serviced offices;

(c)          tradespeople might employ an accountant to assist with lodging their tax returns with the Tax Office, but that does not mean that the accountancy services form part and parcel of, f [sic] the trade services;

(d)          building management companies provide air-conditioning, maintenance, cleaning, security and concierge services to their tenants but this does not mean that they are part and parcel or inextricably bound with the professional services provided by the tenant firms who avail themselves of those premises and building management services;

(e)          Mr Bateman provided a further example of the services provided by Westfield to Woolworths.  Woolworths supermarkets may retain the premises and building management services of Westfield, but this does not mean that Westfield is providing Woolworths’ supermarket products and services; and

(f)          similarly, no one would suggest that Westfield is providing the medical or dental services of the medical and dental centres housed in its premises that also retain Westfield’s building management services.”

This is the most self-incriminating evidence that accountants and lawyers need to consider.

Paragraph 56

Assume then a member of the public who wishes to see a GP who is contracted to and has a practice located in one of the applicant’s medical centres (leaving aside, for the moment, the issue about Idameneo and how the marks have in fact been used).  The patient calls the centre and speaks to a receptionist.  On the applicant’s case, in answering the call, the receptionist is providing a service only to the GP the patient might wish to see and not to the patient.  This is untenable.  The GP who ultimately sees the patient pays for the service but the service cannot be said to be a service to the GP only.  It is also a service to the patient, the cost of which is borne by the GP, at least insofar as the GP does not seek to recoup those costs in the consultation fee.

Paragraph 57

Having made the appointment, the receptionist makes a record of it so that the GP can know when the patient is scheduled to arrive.  This is a service provided to the GP but, again, it is also a service to the patient.  It ensures that a GP is available when the patient arrives.  Assume that the receptionist, the day before the appointment, sends the patient a reminder.  This is a service to the GP because it avoids late cancellations or patients failing to show up, but it is also a service to the patient reminding them of the time and place of the appointment.  When the patient attends the centre, the patient is not greeted by the GP.  The patient is greeted by the receptionist.  The receptionist may provide a range of services to the GP and to the patient at this point, such as taking the patient’s name and address, Medicare and health cover details or letting the patient know when the GP is likely to be ready.  When the patient sees the GP the patient then receives clinical care from the GP.  After the patient has seen the GP the patient sees the receptionist again to pay the bill.  The receptionist prepares the invoice, a service provided to the GP, but also to the patient who wants to receive the invoice.  The receptionist takes the payment.  In so doing, the receptionist may arrange for the patient to receive a Medicare or health cover rebate or arrange for the patient to assign the rebate to the GP, leaving the patient to pay the gap, if any, out of pocket.  Again, these are services to the GP, but are also services to the patient. 

Paragraph 58

The applicant’s receptionist training manual confirms these, and other, matters.  For example, the receptionist must have available a list for patients of all specialist services available within the centre (such as radiology, dental, cardiology, physiotherapy etc) and their hours of operation.  The function of the applicant and the obligations of the receptionist are described in the manual in this way:
As a service provider to medical professionals and the patients that attend to see those medical professionals, we must present in a professional and welcoming manner.

Paragraph 59

Receptionists are directed to “provide appropriate advice” to any patient who “requires directions”.  They are instructed to “complete patient personal details and billing” including asking for the patient’s Medicare and health fund card.  Receptionists are instructed about how to deal with emergency calls from a person.  They are instructed about the steps that must be taken to deal with a patient who has had an abnormal test result, the objective being to try to ensure that the patient attends the centre to see a doctor.  The receptionist must make a detailed file note of the attempt to contact and ensure the patient attends the centre.  The receptionist is instructed to remind doctors of the policy that all patients are to be seen in order.  They are instructed how to respond to a patient who enquires about the waiting time and how to manage queues of patients.  They are instructed about requirements for patients who have claims for workers’ compensation, against Comcare, and against third parties. 

Paragraph 60

Reality dictates that the applicant’s attempts to characterise the Services as services provided only to medical professionals cannot be accepted.  The attempts reflect a misconception which affects the entirety of the applicant’s case. 

Paragraph 62

Another misconception in the applicant’s case is apparent.  It is the notion that the applicant is in the business of providing the Services to health professionals.  This is inaccurate.  The applicant is in the business of operating medical centres to which it recruits GPs and, as part of a much larger set of activities, it also provides the Services to the health professionals who have contracted to work from such a centre.  No health professional can simply purchase the Services from the applicant.  As part of the applicant’s overall activity, but not otherwise, the applicant provides the Services which of their very nature and in many respects are services to not only the GPs and allied health professionals, but also to members of the public and to others involved in the health system. 

If you can understand all this and you think you have a problem, this is why you need to speak to an experienced medical and healthcare lawyer and accountant. 

Having been an AGPAL Surveyor for over 10 years. I do intimately understand these points. 

Stop procrastinating, things will only get worse, where you could be at a no return tipping point. It will be alright if you start now. Book a no obligation and confidential chat with us if you are still not sure.

These are some additional free self-assessment checklist resources that can help you get started:

1. Free Self-Assesements Checklists 

2.Payroll and Income Tax Webinar(s)

For more insights visit our blog.

About me: David Dahm BA (Acc.), CA., FCPA, CTA, FFin, CPM, FAAPM, FAIM, FGLF.

Chartered Accountant, Chartered Tax Adviser, Registered Tax Agent, Former AGPAL Surveyor 10 years of service

David Dahm is CEO and founder of the national medical and healthcare chartered accounting firm Health and Life and global Founder and CEO of the not for profit project the International Healthcare Standards and Ethics Board (

After a serious work related car accident in 1989, and nine operations later I continue to be a patient and provider advocate. I enter my third decade as a national Chartered Accountant for Medical and Healthcare practices in Australia. I am a former 10-year Australian General Practice Accreditation surveyor. I come from a medico family. I have served on the AAPM national Board and was the inaugural national Chair of the Certified Practice Manager CPM post nominal. I continue to provide accounting tax and practice management advice to many practices all over Australia.

You know who you are and I thank you for this real honour and privilege to serve you and your community through you. Note, I am not a lawyer please seek appropriate legal and accounting advice. This information is for general information and discussion only.

Recommended Posts

No comment yet, add your voice below!

Add a Comment

Your email address will not be published. Required fields are marked *