Health and Life’s Payroll and Income Tax Top Three Tips for medical and healthcare practitioners 

Top Three Tips – Understand you are not a “practice, medical centre or clinic”, then fix your advertising and your cashflow problems

It is nice to see large legal and accounting firms are starting to publish, how to set up and run a tax-compliant practice. 

Understandably, there remains a high level of unnecessary non-compliance and confusion that is hurting Federal bulk-billing push being ‘killed off’ by states increasing tax take on GP clinics, doctors warn.

Alarmingly, around the nation, the recent SA payroll tax amnesty has revealed a concerning trend: nearly 60% of the practices within the state are 100% non-compliant.

This should serve as a significant warning. Many of you are using these firms for advice. 

Tethering a sub-optimal business structure can cause a titanic set of problems.

Unsurprisingly, there is a growing trend of individuals seeking a second opinion and expressing skepticism towards the advice provided by the RACGP, peers, and advisors.  

We welcome the thawing of understanding by leading legal and tax advisers in this space.

More high-profile accounting firms such as KPMG and Avant have supported our long-held position endorsed by the landmark Queensland “Relevant contracts-medical centres” ruling for an “Administrative Business” model. 

Interestingly, William Buck SA partially recommended a RACGP payroll tax amnesty for their clients. No medical or health specialist, accounting or law firm appears to have outright publicly recommended the amnesty as a great idea to their clients to date. 

Later on, we discuss why. The major reason appears to be that advisers remain unclear or confused. They continue to incorrectly co-mingle the sole purpose of an entity by using the words “practice-service entity” in their advice, which is contrary to contemporary law and tax rulings and confusing to readers and clients. 

A significant turning point 

The good news, due to the RACGP the problem is now well recognised. Finally, after reading in detail the QLD payroll tax ruling, some advisers are now focussed on a permanent solution beyond just paying the tax. Triggering a bigger ATO income tax problem for practitioners and the “practice” remains a larger concern.

Missed opportunity – patients are unnecessarily expected to foot the bill due to poor advice

A significant number of individuals, “practices” and their advisers are unaware that they may have an “Administrative Business” i.e a service trust or company, that is exempt from “contractor” payroll and income tax, thereby missing out on a valuable opportunity for cost savings.

No patient sick tax needs to be charged, nor should you have to engage in extreme separate banking solutions. Your accountant may not realise this knee-jerk reaction is harming your cash flow, tax, and fraud compliance. 

As more practitioners better understand whether they have tax-safe arrangements and what they can do, this will mark a significant change in how all practices in Australia will operate. 

Most importantly, it will provide a competitive edge, where patient fees will not have to be raised against non-complying practices.

Those who are aware are surprisingly better off regarding practitioner recruitment and retention. Our clients report,  this tax compliance issue is the new land grab offering that is attracting practitioners’ attention to join your location.

It is imperative to understand that, regardless of the size of your practice, adherence to the established medico-legal, payroll and income tax regulations is essential. 

We predict this high failure rate will fuel increased audit activity and a movement towards a long held, commercially tax-compliant approved “Adminstrative Business” i.e. service entity model (Tenant Doctor).

The Best Way Forward: Know your purpose the “Administrative business” Model

Confirm you have an “Administrative business” Model i.e Service Entity model (Tenant DoctorTM)

Many do have one but they have been poorly advised by their lawyers and accountants they have one. Then they unknowingly mischarecterise themselves as a “Medical Centre” which opens up an alchemy of ethical, commercial, legal and tax problems.

The latest payroll and income tax rulings suggest that the most favorable approach, if you wish to avoid employing your practitioners and the associated payroll and income tax, as well as medico-legal liabilities, is to operate an “Administrative Business” rather than a traditional “ Practice, Medical Centre or Clinic.” A medical and healthcare hub or complex may be a more apt description.

The QLD State Revenue Office has provided an achievable and sustainable landmark Federal Health Minister endorsed approved payroll tax-free “Administrative Business” payroll tax ruling

This provides a clear and viable improved framework for compliance. All members of your practice must be well-informed about the specifics to ensure immunity from non-compliance.

Now for our top three tips for an “Administrative business”. 

1. Know your Purpose: You are not a Practice, Medical Centre or Clinic

 

It is common to see the term “Practice” being incorrectly used and incorporated into service agreements. This is a widespread misunderstanding and a fundamental legal error, which has been brought to light through recent court cases and tax rulings.

The ATO’s Service Entity Ruling that is based on the 1978 Phillips case is how traditional group “Administrative Business” or Tenant Doctor practices were established. 

The Significance of the Phillips Case

The recent payroll tax office rulings make references to this arrangement, but they do not explicitly cite the landmark Phillips case. This may be the reason why many legal and accounting advisors have overlooked the clear authority that establishes these guidelines.

The Purpose and Structure of Service Entities

Traditionally, a service entity is established to protect independent sole trader practitioners from being collectively sued for malpractice by their peers. In this arrangement, each practitioner maintains their own separate practice, with distinct branding, marketing, and tax identities (ABNs), ensuring that patients do not perceive them as part of the same organisation.

For example, QLD AHPRA states “Subdivision 4 Advertising

133 Advertising

(1) A person must not advertise a regulated health service, or a
business that provides a regulated health service, in a way
that—
(a) is false, misleading or deceptive is false, misleading or deceptive or is likely to be
misleading or deceptive;” 

Owners and the Service Entity

The owners, sometimes referred to as “associates,” typically achieve this separation through a service entity arrangement, which is commonly structured as a trust or company.

Compliance Considerations

For taxation and legal purposes, only a medical or healthcare “practice” registered with AHPRA can provide clinical services. To avoid further payroll or income tax liability, a genuine service entity can only provide administrative services to the public and exclusively to the tenant doctors, without directly or indirectly employing or contracting practitioners to deliver clinical services to the public, such as nursing wound care, under the same publicly available and traceable website, business name, and ABN.

Restrictions on Employing Practitioners

Accordingly, service entities should not employ registrars or locums and pay them using the service entity’s bank account or ABN, as this would be inconsistent with the purpose and structure of a genuine service entity.

The regulatory history of independent contractor law affecting medical and healthcare practices reveals a complex matrix of laws that extend beyond just payroll tax considerations. See The regulatory history of independent contractor law affecting medical and healthcare practices.

For more information see:Understanding the difference between a “Tenant Doctor” and an “Independent Contractor” for tax compliance is critical, 27th February 2024.


2.Fix how  practitioners  advertise

Do patients perceive the practitioners as appearing to be working for a “Medical Centre” or from consulting suites co-located in a medical and health hub or complex?

Avant Legal’s latest article on appropriate practitioner website and stationary recommendations is detailed below.

While we agree with the majority of their recommendations, there is one minor yet crucial point that we would like to address later regarding their loose reference to the term “practice.”

William Buck in their newsletter, makes a similar and serious error by referring to “practice service entity” see “Review your contracting arrangements for practice owners”, 29th March 2024.

Quite simply you are either a practice or a service entity. You cannot be both, otherwise, you are co-mingling your business purposes existence which attracts a significant payroll and income tax compliance problem. 

It is like arguing you are a man (service entity) and a woman (clinical practice), the medical treatment is dramatically different depending on how you identify. You are payroll tax and ATO contractor tax-free if you solely identify as a service entity and not also as a “practice”. 

“Practices” should focus on the individual practitioners’ advertising, website and contact form information and not mix up their advertising with the service entity (sometimes incorrectly referred to as a “Medical Centre”).

The underlying purpose of your business is a critical technical commercial and tax matter. It has now been identified as a substantial legal risk about payroll and income tax, warranting careful consideration.

Payroll and income tax offices are doubling down on this issue. As we have reported earlier, recent national ATO Tax rules exist.  

The following quote from the Avant article recommends…

“Practices should ensure that they are careful with the language that they use on this website by avoiding phrases like:

“We’ve been providing care to the community for the last 20 years”;

“Our doctors”;

“About Us” (where this reference includes doctors); and

“The Team” (where this reference includes doctors).

The website should be clear that it is the doctor who is providing the medical services, not the practice. Below we have included some examples of how some practices are inadvertently misrepresenting the relationship with patients and some recommended language to reduce this risk:

“We provide a full range of medical services”

 “The doctors we support provide a full range of medical services to their patients”.

“We are a practice focused on the health of your whole family” 

 “We are a practice focused on supporting your doctor to look after the health of   

  your whole family”.

Interestingly, there is a legal obligation for an accountant, i.e. tax agent, to check their client’s website for compliance see: What do brothels and medical and healthcare practices have in common: ATO contractor rules!

Even prominent law firms specialising in medical practice are facing challenges with basic tax compliance advice, including federal income tax guidance which may fall outside their expertise, potentially jeopardising their efforts. 

This underscores the importance of consulting with seasoned legal and tax professionals who collaborate and have a holistic view across all critical legal domains to eliminate confusion and ensure comprehensive support

Remember, You are not a “Practice”

Unfortunately, the Avant article, continuously refers to a Adminstrative business i.e. a service entity as a “Practice”. 

If you do not want to be liable for unnecessary payroll or income tax, do not refer to your service entity as a “Practice”. Understanding the sole purpose of your service entity is critical. 

At law every word and intention matters: It is a Service Entity (i.e. Tenant Doctor) and not a “Practice” 

  1. Fix Your Cash Flow Problems

Thirdly, fix your cash flow problems. Cash flow is the lifeblood of any practice.

Seek detailed practical legal and tax advice on how you can have a near fully automated quasi-centralised bank account that is tax compliant and reduces fraud/ It should simplify accurate banking and tax reconciliations. It is legally possible. See Tenant Doctors TM: Critical banking tips for protecting yourself from not getting paid correctly for weeks or months or at all!

Where to from here

The bottom line, when it comes to GP payroll and income tax compliance, there are three camps. The “Naysayers”, “Three Monkeys”, and the “Nike”. The Nike camp is the only one that will have a competitive edge and will dominate in the years to come.

Furthermore, there are some obvious signs the tax regulators have identified to confirm if you are complying. The first is whether your practitioner has an individual website that can be traced to a practitioner’s publicly available Australian Business Number (ABN).

Nobody wants to risk their livelihood and patient access to quality care with cavalier practices, lawyers, accountants, or advisers.  

What is clear, respectfully high-profile legal and tax advisers still do not understand the totality of all commercial, payroll, and income tax laws which is of concern. 

The Medical Republic article  Who is looking after the tenant doctors? 

The Naysayers, naively, do not want to address the latest tax Rulings or the law. They with others, hope to lobby politicians into submission. They do not realise they are chipping away at a multitude of Rock of Gibraltar laws. This deceptively seems like an easier but more dangerous path.

As previously warned, the recent fallout from payroll tax amnesty in QLD and SA has shined a spotlight on all healthcare practices and are a case in point. This appears to have done more harm than good.See: The GP Payroll Tax Amnesty: protection or just a clever fishing expedition?

Camp Two: “Three Monkeys”

Camp Two represents the “Three Monkeys” Hear Nothing, See Nothing and Do Nothing.

These practices do not like change and remain in denial, hoping somebody else will fix their problem for them. They rely on being a doctor which may protect them or saying “It is too hard,”  “I have no time or “I do not want to know about it” makes them a classic tax audit target. 

They are prepared to take a risk on their livelihood and their practitioners so that they will not get caught and will attempt to plead ignorance until their practitioners start to leave them; 

Camp Three: Nike says “Just Do It “ 

The Nike Camp just wants to get on with it. They know the rules are out. They have received clear and precise advice, that is easier to implement and will not harm their cash flow or trust. They understand to be compliant, is a new recruitment and retention competitive edge. 

They do not agree with the two other camps. With an open mind, they are seeking sound ethical and legal solutions that other practices have successfully run, that are consistent with the tax rulings and the law. 

They understand they will need to invest significant time and money to protect everyone’s livelihood and not risk insolvency. 

Sadly, Camps One and Two are prepared to mock Camp Three and their advisers for attempting to become compliant because it is a harder but more solid road to travel on. Ultimately and intuitively, they understand it will give them a competitive edge and a more sustainable and safer practice without having to increase patient fees. 

Nationally, expect audits to spread if there is a high level of non-compliance

Expect your accountant to be reported to the tax agent board for non-compliance under the new tax agent whistleblower rules

In my home state of South Australia, over 50% of GP practices are now liable for payroll tax. This has provided us a unique bird’s eye view of what tax investigators are focusing on, that will apply to all States. 

Once tax liability assessment notices are issued, do not expect to hear more from this and other states and territories that will spook your practitioners to consider leaving if you have done nothing to thoroughly address the issue.

Many concerned practitioners and practices have contacted us about the advice they have received. 

Surprisingly, many are disappointed that, they or their advisers did not correctly understand their structures, had unnecessarily been advised or had applied for a payroll tax amnesty. Sadly, the majority of them could have legally avoided past and future liabilities. 

One legal defence is to simply state you have been profoundly misled and leave it to your legal and tax advisers’ malpractice insurance to pick up some of the damage if you have a valid negligence claim. It is legally possible to ratify past arrangements if you can prove you intended to be compliant. 

Over to you where you need to seek an independent second opinion.

Source(s):

 

  1. Payroll tax – Avant Law’s top five tips for health Practitioners, 4th April 2024
  2. Understanding the difference between a “Tenant Doctor” and an “Independent Contractor” for tax 

    compliance is critical, 27th February 2024.

  1. Stop calling yourself a medical centre, The Medical Republic, 14th March 2023
  2. What do brothels and medical and healthcare practices have in common: ATO 

     contractor Rules!, Health and Life, 19th December 2022

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 (www.ihseb.org)

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.

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