Payroll tax myths busted!

The latest Australian news headline best summarises how doctors are feeling. 


Payroll tax, is only a small part of a much larger problem. Media reports indicate that any short term payroll tax exemptions may be a dead dream. Tax compliance now extends, beyond just bank accounts and good contracts.

The Australian Tax Office’s latest national contractor ruling on December 2023. It affects everyone; practitioners and their owners are being ordered back to see their lawyer and accountant.

Due to Government data sharing, do not be surprised to see the ATO, Superannuation Guarantee, Workcover, or Fair Work coming knocking on your door, if you are involved with in a regulatory audit.

What is more surprising is that very few advisers and professional bodies appear to be totally unaware of or understand this much larger problem. A 5-year-old back-dated compliance audit can end up costing a Medical Centre up to $250,000 per full-time equivalent GP.

A greater concern is that there remains a poor understanding. There is a solution that the Queensland State Government’s payroll tax office published on the 19th September 2023. This means GP and other medical and healthcare practices do not have to payroll tax if they are correctly structured and operated annually. 

As foreshadowed, the Federal Health Minister has backed the landmark Queensland payroll tax solution as a “national “benchmark” solution that all States should follow.

A GP insightfully wrote:

“I don’t know how all these accountants and lawyers and financial advisors that we employed missed this for the last 5 years. How is it all explained? 

Doesn’t anyone read or know the rules?

Was the interpretation of the rules changed? If so, why are all the state governments, all of a sudden waking up to this extra revenue? Something smells fishy?”

To be brutally honest many trusted high-profile and traditional legal and accounting advisers advisers have not understood the rules since 1978!

Sadly for many practices that do not follow the latest landmark payroll tax Ruling, patients, get ready to foot the bill for your Medical Centre’s unpaid payroll taxes.

This myth-busting blog is about not blaming the messenger. Reading further could help you avoid a lot of regulatory problems.

As we have warned earlier, when applying for a payroll tax amnesty, even for those who are tax compliant, applying for the amnesty may imply non-compliance unless it can be proved otherwise. 

The many precedent Court rulings, which are the basis of any payroll tax ruling, whether they are in existence or not, require attention to quite pedantic details. 

Just because your State or Territory does not have a government sanction Ruling or is inconsistent with other States or Territories does not mean you have an excuse. A ruling usually summarises a myriad of well-established case law. Its aim is to provide some practical guidelines to tax payers. It is not the law, but their own view of the law. Their only job is to administer the law.

For the trained and experienced eye, this is why our blogs on this topic can be long. It is a complex issue. A dangerously oversimplified understanding even amongst legal and tax advisers has led to this national payroll tax pandemic.

Becoming compliant is no different from practice accreditation, but with greater financial consequences for non-compliance. It is dangerously oversimplified to think of quick banking or contract fixes is an instant panacea.

It is my opinion, that those who applied for the payroll tax “amnesty” in QLD and SA, prepare themselves and their practitioners for a world of pain. Expect a multitude of inquiries and expenses related to legal and accounting matters. 

Hope is waning for the remaining States and Territories to follow the amnesty/exemption road.

There is a dangerously oversimplified understanding. Simply changing your bank account and having a written contract prepared by a lawyer will not protect you. 

Risking some surprise or embarrassment, be prepared for the ATO to contact you and your practitioners. Ready or not they will be notified. 

You will need access to experienced medical legal and accounting payroll tax-tested expertise and guidance that we have. Alternatively, innocent responses can quickly spiral out of control.

For the rest of you, I strongly recommend to make sure you comply. We are only witnessing the start of a surge in independent contractor auditing and enforcement of regulations in Australia. 

If there continues to be a high number of non-complying practices expect this to fuel further activity.

More about this later.

Measure twice, cut once: 

These so-called new rules have been around for decades, some key laws from 1978. So if your advisers are not aware of them, this is the first problem you need to recognise. 

Your first step is to educate yourself

You will need access to experienced medical legal and accounting payroll tax-tested expertise and guidance that we have. Alternatively, innocent responses can quickly spiral out of control.

For the rest of you, I strongly recommend to make sure you comply. We are only witnessing the start of a surge in independent contractor auditing and enforcement of regulations in Australia. 

If there continues to be a high number of non-complying practices expect this to fuel further activity.

More about this later.

In this blog, we will cover the following areas:

The “Administrative Business (Tenant DoctorTM ) Model” remains the optimum payroll tax-free solution

Two simple questions to work out if you may be liable for payroll tax:

Is my business deemed a medical centre or administrative service?

Do medical centres have operational or administrative control over practitioners?

Busting payroll tax myths

The Impact

Medical Centre’s risk a GP tax liability of up amount to $250,000, excluding penalties and interest per full-time practitioner

Falling practice valuations and the destruction of succession, recruitment and retention plans

Practitioners are demanding more openness and transparency and reduced service fees

ATO and Fair Work regulators crackdown on “Dependent Contractors”

Are you an independent or “dependent” contractor?

Is your Medical Centre or Practice paying you correctly?

The “Back to the Future” Solution

The decorporatisation of general practice and healthcare

Tax is complex: Demand a Swiss Army and not a bread knife solution

The new cost of doing business is viable

Free Confidential Self-Assessment Checklist

Who is getting audited and why?

Poor advice is to blame

Tax Office: Zero tolerance for poor excuses, clever quick fixes or cutting corners

  1. “My colleagues and advisers say some people in the industry are scaremongering for business. I have not heard from my accountant so I must be alright.”
  2. The Amnesty Program; offers no protection from other significant tax liabilities
  3. “We have deep pockets and good legal advice, so we are compliant”
  4. “We will just pay the payroll tax, increase our fees and it will be business as usual”
  5. “We will just change our banking and sign a new contract and it will be fine”
  6. “My margins are too thin, I cannot afford to become compliant”
  7. “Maybe now is a good time to sell out to a corporate for a good price”

Who is buying general practices today?

What started this problem?

In this blog, we will cover the following areas:

The “Administrative Business (Tenant Doctor TM) Model” remains the optimum payroll tax-free solution

Two simple questions to work out if you may be liable for payroll tax:

           Is my business deemed a medical centre or administrative service?

           Do medical centres have operational or administrative control over practitioners?

Busting payroll tax myths

The Impact:

Medical Centre’s risk a GP tax liability of up to $250,000, excluding penalties and interest per full-time practitioner

  •      Falling practice valuations and the destruction of succession, recruitment and retention plans
  •      Practitioners are demanding more openness and transparency and reduced service fees
  •      ATO and Fair Work regulators crackdown on “Dependent Contractors”
  •      Are you an independent or “dependent” contractor?
  •      Is your Medical Centre or Practice paying practitioners correctly?

The “Back to the Future” Solution

  •      The decorporatisation of general practice and healthcare
  •      Tax is complex: Demand a Swiss Army and not a bread knife solution
  •      The new cost of doing business is viable
  •      Free Confidential Self-Assessment Checklist

Who is getting audited, and why?

     Poor advice or attitude is to blame

     Tax Office: Zero tolerance for poor excuses, clever quick fixes or cutting corners

  1. “My colleagues and advisers say some people in the industry are scaremongering for business. I have not heard from my accountant so I must be alright.”
  2. The Amnesty Program; offers no protection from other significant tax liabilities
  3. “We have deep pockets and good legal advice, so we are compliant”
  4. “We will just pay the payroll tax, increase our fees and it will be business as usual”
  5. “We will just change our banking and sign a new contract and it will be fine”
  6. “My margins are too thin, I cannot afford to become compliant”
  7. “Maybe now is a good time to sell out to a corporate for a good price”

       Who is buying general practices today?

What started this problem?

The “Administrative Business (Tenant DoctorTM ) Model” remains the optimum payroll tax-free solution

We are reverting to a conventional yet modernised and more exciting approach to medical and healthcare practices. 

You will start observing this through changes in the external branding signage, to “Medical Hub” and “Medical Consulting Suites.” 

There a legal and tax reasons why you do not see “Uber” advertised on their driver’s cars, you only see the driver. The same approach needs to apply to Medical Centres that do not want to be liable for payroll and income tax. Practitioners need to advertise themselves and not the Medical Centre’s “medical business”.

The recent landmark ruling on the QLD Medical Centre payroll tax will require the restructuring or formal approval or demise of the single branding “Medical Centre” corporate-like model.

It will greatly affect the finances and operations of all professionals and practices.

It will be a beneficial step. It will liberate and empower practitioners to restore the doctor-patient connection without any intermediaries focused solely on financial matters.

Many practices are still looking for a quick solution to pain, but it doesn’t exist.

By paying the payroll tax for your “independent contractors,” you are likely to logically trigger a multitude of additional obligations similar to employment obligations and liabilities. 

Two simple questions to work out if you may be liable for payroll tax:

  • The proposed solution is that direct practitioner banking or having a well-crafted written contract may provide a false sense of security unless you holistically can answer these two questions below:
Is my business deemed a medical centre or administrative service?

An attachment to the provided ruling explains the criteria for identifying if a medical centre operates as a business or an administrative service business.

If a medical facility is not running its business, the payroll tax ruling and payroll tax may not apply.

Factors to take into account include (but are not limited to) the methods of promoting/advertising the business, the individuals responsible for determining billing practices and the types of medical services to be offered, the individuals responsible for determining/rosters, the party retaining control over patient records, the party for addressing patient dissatisfaction, and the level of restrictive covenants imposed on practitioners. 

Do medical centres have operational or administrative control over practitioners?

The ruling includes an attachment that outlines additional indicators of a medical centre having operational or administrative control over a practitioner.

If a medical centre lacks operational or administrative authority over a practitioner, the likelihood of a relevant contract is reduced. Factors to take into account include but are not limited to, designated work periods, policies on leave, specified service locations, adherence to operating protocols, monitoring patient billings, advertising group practice fees, and patient fee/payment protocols.

Busting payroll tax myths

We seek to mythbust many payroll tax misunderstandings that continue to traverse this serious compliance problem.

Once again patients are political pawns embroiled in another serious healthcare funding football.

Predictably the influence of a “bean counter care solution” that sits between the doctor-patient relationship is unnecessarily and systemically harming access to high-quality patient care.

Leading national medical and healthcare professional bodies are claiming it is the State and Federal Governments’ fault for not making the tax rules clear. The Government has correctly countered there has been no change except for increased audit activity.

The QLD payroll tax-free-safe ruling solution is forcing other States to follow. 

It is based on established legal case precedents at the national level. In other words, regardless of the remaining States’ desire to remain uncertain, the QLD Ruling may apply, as many States have implemented synchronised payroll tax laws, except WA.

Leading professional bodies and practices seem to be disregarding this sound ruling, instead encouraging their members to unfairly pass on this cost to patients.

 Ironically this can only make your tax problem worse.

The Impact:

 
Medical Centre’s risk a GP tax liability of up amount to $250,000, excluding penalties and interest per full-time practitioner

Non-compliance can threaten your livelihood. Recently a new case was referred to us where the liability is up to $4m including penalties and interest for a 20 GP practice. 

Do not assume that you can effortlessly persuade a judge or politician to protect you from trouble. It will attract an unavoidable lawyers and accountants picnic that will permanently eat into your life savings. 

Based on a 5 year backdated tax audit, we estimate that the additional expenses associated with a “Medical Centre” for each full-time GP amounted to $250,000, excluding penalties and interest.

This includes, but is not limited to, Superannuation, Workcover and the proposed Fair Work Independent Contractor obligations. 

Falling practice valuations and the destruction of succession, recruitment and retention plans

Due to payroll tax liability concerns, we are observing many practices selling for very little. Furthermore, practitioners are checking their arrangements and payments to ensure they are being reported to them. 

Increasingly practitioners are actively seeking to join “tax-safe” practices that are implementing payroll and income tax-tested advice. 

Practitioners are demanding more openness and transparency and reduced service fees

You have to be able to answer the hard questions or risk losing the Practitioners’ confidence and trust in you.

Operators who can prove they are complying with the law. To avoid Practitioner flight risk openness and transparency, clear and practical advice and guidance are critical. 

As an experienced payroll tax-tested Chartered accountant, at the request of my clients, I have co-presented with their lawyer to the practitioners operating from their premises. 

We have addressed practical solutions to industry concerns and oversimplified solutions that are being touted. 

To avoid payroll tax liability, a more sustainable and socially responsible approach is to strictly adhere to the complete ruling on the exemption for “Administrative Business” in QLD Medical Centres’ payroll tax Ruling.

The Ruling is based on long-held legal cases that we have adhered to for decades. It is why our clients are not liable for payroll tax and after landmark Rulings have passed payroll tax audits and received exemptions. 

The devil is in the details: you have to address each of the 44 criteria in the ruling, not just having the right bank account or legal agreement. You need to prove it, like RACGP accreditation for practices. 

Be sure to ask your legal and accounting adviser what other implications arise from paying payroll tax. 

ATO and Fair Work regulators crackdown on “Dependent Contractors”

Once again it is being ironically touted that medical corporates are a white knight solution to a problem they had created for the industry.  

In the end, it is patients who are footing the bill for all this conflicting misinformation largely driven by greedy financial players who will ultimately sell off any troublesome practices, leaving practitioners and patients to ultimately foot the bill.

Many high-profile medical and healthcare, accounting organisations have blamed the Government, politicians and some of their advisers. The question is who is to blame. Was this avoidable? 

Respectfully, it may be worth consulting your legal and accounting advisors to confirm the legality of your arrangements. Some may have dismissed the issue without proper consideration, much like a “flat earth denier.” This problem could potentially be a result of their actions.

Governments must cover the extensive COVID-19 expenses worth billions of dollars. Irrespective of one’s identity, the upcoming decade will prioritise enhancing tax compliance rather than raising taxes.

All tax and employment regulators are focusing on “Independent Contractors” as a major concern.

Are you an independent or “dependent” contractor? 

If you are not a genuine business do not be surprised if the tax man comes knocking on your door and asks you to pay their employer super, PAYG, Workcover and leave entitlements. One claim alone could financially cripple both the independent contractor and you if you engage them incorrectly. 

Why the “Independent Contractor” crackdown?

The answer is simple: it is about cash flow. 

It is easier for the government to classify all workers as employees and ask an employer to deduct tax before the employee receives their pay. They do not have to wait up to 18 months to get paid. 

Is your Medical Centre or Practice paying practitioners correctly? 

Once you or an auditor understand your legal structure and contractual arrangements, the next step is to examine how any money is collected and paid to practitioners. 

A practitioner’s service fee calculation sheets, software programs and any related “payslip or reimbursement slip, tax invoices, letterheads” can provide self-incriminating evidence. Any agreements or arrangements must be able to reconcile to bank statements and accounting systems and records. A common mistake is that many people have naively assumed somebody else has taken care of it. 

Very few practice accountants are involved in reviewing the technical context and content of this information. This is a major reason why there is a low compliance rate.

The bottom line it is up to all parties to understand your arrangements and take proactive steps to ensure you are compliant. If you do not understand your arrangements ask for an explanation in writing and send it to your lawyer or accountant to verify.

There are tax-tested compliance and annual Tenant DoctorTM certification tools available like the Doctors Pay Calculator Tenant DoctorTM e-service agreement software program, that can simplify this process. 

This cloud Tenant DoctorTM certification program we offer integrates with existing accounting systems to ensure compliance arrangements are watertight. It is a minimum tax and legal requirement to ensure every cent can be reconciled to a legally prepared service(administration)agreement with every practitioner i.e. Tenant Doctor.

The “Back to the Future” Solution

If you are an optimist, what we are truly witnessing is the great emancipation of practitioners with their patients and the unpairing of direct financial incentives and influence over practitioners.

Now is the time to make something new out of old cloth. Many are compliant and do not realise it. Hint: check if you were initially set up as a service entity i.e. “Administration business”. 

Practices must ratify and provide evidence of how they conduct their operations. This mirrors the structure and operations of professional doctors, accountants, and lawyers in the early 1980s when they aimed to prevent negligence claims by sharing staff and facilities costs.

This has been ratified by the landmark 7th September 2023 QLD Payroll Tax Medical Centre Ruling amendment.

For those who have read it carefully, the Ruling is clear by providing more opportunities for practitioner recruitment, retention and succession planning than they first thought.

There exists a viable and socially responsible opportunity for owners of “Administrative Businesses” to support practitioners. You can continue to ethically support practitioners, patients and the community. It will improve your business offering value to your tenant doctors. 

Implementing the right solutions should improve morale, reduce red tape and improve profitability.

More about that later, back to the bottom line problem.

The decorporatisation of general practice and healthcare 

Expect a tsunami of practitioner and “Medical Centre” audits.  I hope I am wrong. Enough practices have volunteered to be audited. Time will tell. 

Depending on how they go, this would possibly fuel further widespread audit activity, given the current scale of non-compliance identified to date by listed Medical Centres and smaller ones across the nation. 

Our hail mary prediction is this flawed business-tax model could lead to the decorporatisation of medicine and healthcare. 

This follows from my first public prediction in 1997 that there would be the corporisation of medical and healthcare in my maiden interview with the Medical Observer “Managed Care by Stealth a new threat to GPs?”.

Ironically successful tax audits could make redundant the current corporate business model i.e. no more big upfront payments to practitioners tied to their billing performance or “tricky” practice joint-ownership arrangements. The tax office appears to have finally caught up

The banks and investors are becoming nervous. 

Tax is complex: Demand a Swiss Army and not a bread knife solution

Yes! We largely agree with the latest QLD Payroll Tax Ruling. We refer to this arrangement as the “Tenant Doctor” ™ solution.

It is clear there is a way forward based on national legal case precedent on how not to be liable for a payroll tax if you are an “Administrative business i.e. Tenant Doctor” and not a “Medical business”. 

The Queensland Medical Centre Payroll tax ruling and amnesty were recently endorsed by national Federal Health Minister Mr Mark Butler.

Mr Butler looked to the Queensland model as a benchmark for the nation.

Source: The Medical Republic: Payroll tax to eat up bulk billing incentives 15 November 2023

He has encouraged all States to follow. 

This may feel like a back-to-the-future revelation. This remains a good way to medico-legally structure your practice. The law has remained sound since 1978 with the introduction of service entities for professional persons such as doctors, lawyers and accountants. 

Many of these concerns appear unnecessary after the latest Queensland Medical Centre Ruling. This Ruling states you are not liable for a payroll tax if you have been set up as an “Administrative” and not a “Medical Business”. 

This is a Swiss Army knife solution to a complex problem when implemented correctly. This should also address the latest ATO-deemed contractor rules (where contractors risk having their ABN’s cancelled if they are not running a genuine business e.g.regularly advertising their own website and domain name).

Furthermore, it is possible to avoid the implication of the 11% Employer Superannuation Guarantee Charge, Workcover and proposed changes to the Fair Work Act.

The new cost of doing business is viable

The estimated once-off cost of fixing this if you genuinely have a problem can range from $3,000 to $7,000 per practitioner.

The annual ongoing costs of as little as $90 per practitioner per month. This is far cheaper than paying $900 per practitioner to meet monthly employee on costs.

Unfortunately, being penny-wise but pound-foolish, hubris, ignorance or not wanting to educate one’s.

There is a Swiss army knife (QLD Medical Centre payroll tax ruling) solution

Supported by the Federal Health Minister, State Government(s) can now state that we have alerted you, and ignorance or the principle of plausible deniability will no longer be acceptable.

Professional bodies are failing to secure a permanent tax break. I would be happy to be proven wrong. 

The unintentional result of these actions is that it has brought awareness to tax regulators that many medical and health practices are not in compliance.

This issue is rapidly spreading. Prepare for a new second wave of audits in the sector.

The latest QLD Payroll Tax ruling, which has incorporated numerous suggestions we’ve made over the past three decades, has finally acknowledged the long-standing case precedents. 

This ruling would intimidate even the most courageous politicians, lawyers, barristers, and accountants from attempting to challenge it.

Medically specialised senior lawyers and accountants who are experienced know that there have been clear rules established by a battalion of national High Court, Federal Court, State, and Federal laws since 1978.

It’s time to be practical and ignore oversimplified popular solutions from professional bodies and advisers. Move away from ad hoc advice, it is more than just having a separate bank account and a legally prepared written contract.

If you cannot afford a tax audit, consult legal and accounting advisers with experience in successfully defending their clients.

How to cost-effectively seek the right professional legal and accounting advice (a quick overview):

  1. Educate yourself

Ask your legal and accounting adviser or whoever you trust to watch this Swiss Army knife webinar solution to solve this complex legal, tax and accounting problem one-hour free payroll and Income Tax Webinar by The Medical Republic.

           2.Avoid DIY, Ad Hoc and Quick Fix solutions

Quick fix, banking and or written contract solutions will not work if they are not carefully implemented with your legal and accounting adviser.

           3.Seek specific experienced expert advice

Shooting the messenger without consulting them does not solve your problem. If you are facing an audit you may have only one chance of getting it right.

Identify experienced and qualified expert advisers who have a track record of defending a payroll tax audit in your sector. Be specific. 

Avoid asking generic questions and accepting generic answers. It is more crucial to ask the correct questions rather than simply seeking popular or right answers. Keep in mind that not all practices are identical, and it is incorrect to assume that all practices are guilty of non-compliance.

Free Confidential Self-Assessment Checklist

   This may be a useful tool: 

    a. For Medical Centre/Practice/Clinic: Employee/Contractor v Tenant

     Provider Self-Assessment Checklist 

     b. For a Practitioner: Contractor Self-Assessment Checklist

     Take a hard look in the mirror. It takes courage to look at the good, bad and ugly of the arrangements that you had left to your trusted advisers. Be prepared to trust but independently verify the responses you receive.

Genuinely make the time and be prepared to understand the real magnitude of any problem and where the gaps are.  There is no point your patient survives but the practice dies of an avoidable problem.

    4. Budget for legal and accounting advice – it is cheaper and less stressful than a real audit

Only continue reading if you desire to hold someone responsible for this issue or understand why this problem has spread like contagion. 

Who is getting audited and why?

Media reports that several large and smaller medical and healthcare corporates are now being audited, despite their deep pockets and access to expensive lawyers and accountants. 

On 17 November 2023 ASX listed Pacific Smiles Dental ACT was issued a $884,000  payroll tax liability assessment. “The Reassessment is in respect of the four financial years from 2019 to 2022 (inclusive), and pertains to the treatment of its Service and Facility Agreements with dentists for payroll tax purposes.

”The domino effect remains unknown for patients and practitioners.

The political solution does not seem to be working.

Patients and practitioners are now demanding more financial certainty, especially when practical and sustainable solutions exist. 

Sadly this self-inflicted uncertainty is fuelled by a continued cavalier attitude and poor understanding of the law. Many innocent patients and practitioners will end up unnecessarily as collateral damage.

Poor advice or attitude is to blame

Measure twice and cut once. 

Poor legal and accounting advice and implementation appear to be the main reason for a lack of compliance and not the Government or the tax regulator. 

The current payroll tax pandemic is a case in point, systematically poor implementation of tax advice is having a real impact on the price a patient pays to see their doctor or healthcare practitioner. 

A GP recently wrote: 

“I don’t know how all these accountants and lawyers and financial advisors that we employed missed this for the last 5 years. How is it all explained?       

Doesn’t anyone read or know the rules?

Was the interpretation of the rules changed? If so, why are all the state governments, all of a sudden waking up to this extra revenue? Something smells fishy?”

Source: The Medical Republic: Payroll tax to eat up bulk billing incentives 15 November 2023

In medicine, the legal concept of “peer review” continues to dominate how the healthcare system operates. In healthcare, there are no globally open and transparent commonly agreed peer-reviewed patient-centred healthcare standards.

Doctors have discovered that this approach, which has been reviewed by their peers, is ineffective when it comes to complying with the tax law, which is regarded as the most complex. Even lawyers and accountants, both generalists and specialists, struggle with it.

The commenter is correct, it is evident that many advisers including high-profile ones who claim to specialise in the area fail to read or familiarise themselves with the regulations.

Our laws are open and transparent. They are led by Acts of Parliament and real-life case law interpreted by judges beyond well-crafted contracts they are principally based on proof. 

This should drive the legal and accounting advisory world and their clients into compliance. For some, this is of low value until there is an audit. Fighting this when there is an audit or amnesty is a poor strategy. Being an honest fool is not a legal defence.

After all, a Supreme Court judge once told Professor Max Kamien (GP practice owner) that ignorance of the law is no excuse. 

Due to the complex nature of their work, the most up-to-date well-rounded adviser is usually on the money, but they are hard to find and do not come cheap. 

In the end, it is about eating well and sleeping well. A good adviser pays for itself if you are prepared to listen carefully and follow their advice.

Everyone pays a price or takes a risk when it comes to certainty, the evidence is here for you and not only your advisers to determine.

Why does it appear legal and accounting advisers do not know the rules? 

We understand paying for lawyers and accountants is a grudge purchase, but it is far cheaper than the significant and permanent harm this can have on your and many others’ livelihoods. 

The first step is to educate yourself. Ensure the advice is not conflicted and they have a legal basis for any advice given which is in writing.

Many specialised accounting firms primarily rely on lower accounting fees as their main source of income. However, they also generate a substantial portion of their revenue through commissions and trailers received from brokers, banks, and insurance companies. It is worth noting that we do not engage in these practices due to ethical considerations. It is important to appreciate what your adviser specialises in.

Often, professionals discover that they lack expertise in the practical aspects of establishing and operating a medical practice. My experience as a former surveyor for the Australian General Practice Accreditation Limited (AGPAL) for 10 years and managing my late father’s medical practice has given me a profound understanding of the intricacies involved in running a practice.

A common error is to use the Do-It-Yourself method, which involves depending on spoken guidance from your well-meaning coworker, acquaintances, financial institution, software, or medical organisation.

Of note, poor legal and accounting dangerously oversimplified advice and its subsequent implementation appear to be a major cause of this unprecedented payroll tax audit activity. 

A payroll tax amnesty sounds like a great idea until you read the fine print. For many, it may come as a rude shock that they are afforded no legally binding protection. It has become an accounting and legal picnic. 

Lawyers, as per usual, cannot lose if they advise that you should apply for amnesty. After all, they are paid to enter litigation. Expect you will need to rely on their ongoing advice and budget for it. Make sure they have successfully fought and won payroll tax audits before relying on their advice.

For some accountants who are aware they have not been on top of their advice, do not be surprised if they accuse other advisers of scaremongering. 

Those who are aware may see any amnesty as a good way to reduce any future liability should you wish to sue them later for poor or negligent advice.

These appear to be the main reasons we have a payroll tax pandemic.

Ironically, according to the latest media report, large medical corporations may be the solution. In recent years, Primary Healthcare, the largest medical corporation listed on the Australian Stock Exchange, has caught the attention of payroll and income tax regulators.

Deep pockets will not save you this time. Respectfully this story is about hubris and ignorance, which is ultimately hurting patients and providers.

Practitioners and owners need a Swiss army knife and not a bread knife (payroll tax only) solution to solve a complex array of existing and new “Independent Contractor” tax and employment laws. 

Tax Office: Zero tolerance for poor excuses, clever quick fixes or cutting corners 

Cleverly oversimplified software or banking solutions that seem helpful may be a waste of time and money. In reality, they might create more financial issues and tax compliance problems than they were designed to solve.  

Compounding this undercapitalisation of the right advice and systems is apathy, ego and ignorance towards an avoidable situation, which is now being passed on to patients.

Some “flat earth” individuals deny the payroll and income tax exemption with good intentions. The tax office disapproves of those who try to take advantage of a tax break by cutting corners that are not available to any other Australian taxpayer.

Some concerning common responses we have heard from Medical Centre owners to practitioners:

1. “My colleagues and advisers say some people in the industry are scaremongering for business. I have not heard from my accountant so I must be alright.”

 

The scaremongering argument is beginning to diminish. Just because your accountant or lawyer hasn’t contacted you doesn’t necessarily imply that you are following the rules. They might simply be unaware or it could be beyond their area of expertise when you inquire.

The Queensland Medical Centre Payroll Tax Ruling has ratified these critics’ concerns with 44 new criteria on the 19th of September, 2023.

If your accounting adviser has not contacted you, do not make the mistaken assumption that everything is fine. Instead, communicate in written form to inquire about the status and ensure that there are no concerns. Safeguard yourself against receiving inadequate guidance.

Inquire about their experience in the field. The majority of advisors are ethical and have a legal responsibility to direct you to an expert if they are not confident in providing reliable advice that benefits you.

Make sure you ask the right questions with the checklist below. You can then send the results to your adviser to respond to. 

This may be a useful tool: 

    a. For Medical Centre/Practice/Clinic: Employee/Contractor v Tenant      

    Provider Self-Assessment Checklist 

    b. For a Practitioner: Contractor Self-Assessment Checklist

If you feel “profoundly misled” by your advisers, it is up to you to decide if you want to sue them for damages. 

We are currently running litigation cases for clients who have been let down by their accountants and legal advisers in both small and large firms that include a Big 4. 

 2. The Amnesty Program; offers no protection from other significant tax liabilities

“I have applied for a payroll tax amnesty and exemption. I am safe”

Only Queensland and South Australia have offered an amnesty program. In NSW they have delayed for 12 months any audit activity. For the rest, all but WA has adopted the Queensland Medical Centre Payroll tax ruling.

Tax regulators seem reluctant to confront numerous court cases and laws to grant tax benefits to the medical and healthcare sectors.

The Amnesty Program; offers no protection from other significant tax liabilities, if you are liable for payroll tax you could be liable for other taxes and levies such as employee-related income tax, employer super, Workcover and Fair Work obligations.

This may also compromise your independent practitioners where they may risk having their ABN’s GST refunds and service fee tax deductions subject to a 5-year back taxes audit.

Do not apply for an amnesty unless you are prepared to correctly implement a solution like the Queensland Payroll Tax “Administrative business” solution which does not attract payroll tax.

 

Read the amnesty fine print carefully, no amnesty will apply if it is found your arrangements deem your independent contractors as employees

Furthermore, amongst legal circles, tax barristers have raised the legality of any QLD and SA exemption where they have not been Gazetted by law

In practical terms, this means there may not be a real amnesty on offer. 

Therefore anyone applying is volunteering to be first up to be audited with no special protection if they are found to be non-compliant.

Many legal and accounting advisers are bullish on applying for amnesty. 

Be careful. Just make sure they are tax and not just commercial lawyers, this will generate a lot of future work for them. For accountants, an amnesty application has the potential to reduce any future negligence claim you may want to make against them. 

The bottom line: seek experienced independent legal and accounting advice from advisers who have won a payroll tax audit. Their answers should be clear and concise and not one that continues to sit on the fence.

By applying for an amnesty you may reduce the time you have to become compliant and you may have unnecessarily placed a target on your back.

You may have prematurely admitted you have a problem that does not exist.

Finally, it may trigger a Federal Australian Tax Office 11% Employer Superannuation Guarantee and other employment-related audits. These factors need to be considered as well.

 

   3. “We have deep pockets and good legal advice, so we are compliant” 

 

This is a comment we often hear from practitioners about verbal advice their Medical Centre owners receive. But without any written legal context it means very little. In fact the second to largest medical coprorate in Australia was found to be non-complying which has resulted in these latest tax Rulings. 

Several corporates are currently under investigation. I am not sure how they are the solution if they have been the cause of the problem and many are now under investigation. 

Recently some corporates have told their practitioners not to worry they have “deep pockets” and have received good advice. 

As a practitioner, unless you have paid and received this advice in writing which is in your interest this should provide little comfort. 

We have seen this type of reassurance usually does not extend to protecting an individual practitioner from a tax audit and personal liability for non-compliance due to their Medical Centre’s payroll tax audit. 

 

     4. “We will just pay the payroll tax, increase our fees and it will be business as usual” 

Paying the payroll tax with or without an amnesty is not a permanent and expensive solution. 

This may instantly infer your Medical Centre is also responsible for their contractors 11% employer super guarantee. Under this admission the Medical Centre is at risk the extended Superannuation Guarantee definition includes persons who “work under a contract that is wholly or principally for the labour of the person. 

Should the proposed Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 introduced on 4 September bill pass in March 2024, do not be surprised to be deemed as an employer for your “dependent contractors”. You may be forced to pay leave entitlements as well as Workcover entitlements. 

“Corporates have deeper pockets and can better manage the red tape” 

Many smaller practices believe corporate practices have deeper pockets and access to smarter legal and tax advice. The reality is the opposite is true. The corporates are the main reason cited in the landmark QLD Medical Centre’s payroll tax Ruling. Furthermore, there are recent media reports that several GP medical corporates are under investigation. The ASX-listed Pacific Smiles has accepted liability for not complying with their payroll tax obligations in many States with more likely to come.  

 

      5. “We will just change our banking and sign a new contract and it will be fine” 

This is another dangerously oversimplified solution to a complex problem. There are 44 new changes to the QLD ruling you need to take into consideration. In South Australia the payroll tax office stated to practitioners they ignored some well-crafted contracts and the separate banking solution and are focussing on who owns the medical records. 

Fair Work Legislation Amendment (Closing Loopholes) Bill 2023 effectively overturns the Closing Loopholes Bill will effectively overturn two 2022 landmark High Court decisions, Personnel Contracting and Jamsek and more reliance will be placed on ‘How’ you run your practice beyond your legal agreements. 

6. “My margins are too thin, I cannot afford to become compliant” 

The simple answer is yes. It is possible to eat well and sleep well.

By becoming compliant you can take greater control and significantly improve practice profitably, succession planning and reduce medico-legal risks.

Many assume they cannot afford to. With greater financial literacy it is clear most cannot afford to run the risk of paying 5 years of back taxes adding up to $250,000 per full-time equivalent GP. 

Depending on practice size and complexity, the initial cost of complying is less than 2%, and 1% in subsequent years per practitioner of any potential liability.

Compliant practices provide a new competitive recruitment and retention edge for practices and practitioners. Many practitioners are privately concerned they are operating in a “Medical Centre” that may trigger a personal income tax audit.

We have seen a flight to ‘Tax Harbour Safe’ practice arrangements.

Many practices after the initial inconvenience have invested time and money, and it is business as usual. Nobody wants to work in an environment where the owners demonstrate an opaque cavalier approach. 

Implemented correctly, there is a remarkable silver lining for everyone involved. 

From experience, it will provide greater professional and financial recognition, freedom and security to the practice and patients. 

As more practices reduce bulk billing, clients have reported their incomes have actually increased by 25% in the last 12 months.

 7. “Maybe now is a good time to sell out to a corporate for a good price” 

We have heard one owner say “This is all too hard, I have no time or money or interest to fix this, maybe now is a good time to sell out for a good price?”

Selling is a good idea if you do not have the appetite or want to take on the ongoing responsibility of ensuring you and your colleagues are compliant. 

If your profits are already razor thin, nobody will buy you out for a lot of money if you have not fixed your contractor tax problems first. Expect a very low, if not token payout, they will price this in any offer as they will have to pay to fix up your past problems.

Due to the high payroll tax awareness amongst potential buyers, we have seen many smart buyers insert clawback clauses should they become liable for any of your back taxes. 

This is the main reason why many non-complying practices are selling for a low price

Remember the QLD Medical Centre payroll tax ruling specifically referred to a big corporate practice for not being compliant, which was mentioned in the Ruling. 

If the corporates have not been able to get it right now, you have to ask yourself by selling to them are you not jumping from the frying pan into the fire? Their deep pockets will provide little protection from the tax office.

It is worth letting the large medical corporate audits play out before becoming unnecessarily entangled in their problem. Their problems would be far more systematically difficult to resolve than your own. 

They remain a bigger target.

Who is buying general practices today?

Younger practitioners continue their interest in buying a general practice, but they are doing their due diligence more carefully and are asking about payroll tax.

The new buyers of general practice appear to be private health insurers.

This was in my public prediction about the future ownership of general practice in my 1997 maiden public interview “Managed Care by Stealth a New Threat to GPs?”. 

Beware of glossy brochures, flashy CV’s and deep-pocket assurances

Practical solutions beyond glossy brochures and gilded letterhead armchair solutions that reflect the intent of the latest QLD Payroll tax Ruling are what you need.

Focus on this if you want to practice in a safe, sustainable and socially responsible patient-centred healthcare system.

Take care when it comes to taking and giving advice. Maybe stop listening to your peers, family, friends, corporate-speak and ad hoc advice. You are running out of time.

Start seeking medically experienced payroll and income tax-tested professional advice from independent and unconflicted lawyers and accountants.  

Always ask in writing the right questions, it would save me from having to write about this topic again. 

Furthermore, you would save a whole lot of time and money solving the wrong problem in the wrong way. 

Hold on to your chequebook, educate yourself and your team first.

We can then all go back to serving the community at large.

Footnote: 

What started this problem? 

In 1992 Dr Ed Bateman founded Primary Healthcare now known as For Health Australia’s first corporate-owned healthcare practices. (Important to Note: we are not implying For Health  are not complying with any potential statutory obligations)

Their national billion-dollar business model was eventually listed on the Australian Stock Exchange. 

This revolutionised the healthcare industry with many big and small copycat corporate practices eagerly following suit, right down to their onerous practitioner contracts.

Ironically it is this success that has led to many tax investigations in the last decade most significantly in 2017 and 2020. The Federal Courts had determined they were a “medical business” and not an “administration business” because of how they ran their business. 

Regardless of the extent of their financial resources or the perceived intelligence of their legal and accounting professionals, they were unsuccessful in their multimillion-dollar tax dispute. In 2016, we received a communication from the ATO Crown solicitors for our opinion regarding this issue.

In 2021, they experienced a major loss in an ATO Court case regarding lump sum payments for practitioners. This case was referenced in the initial payroll tax ruling for QLD Medical Centre, which has been adopted in multiple states.

This loss may have led to their eventual sale in 2021 to the private equity firm BGH.

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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