These are the significant independent contractor cases and rulings that affect medical and healthcare practices.

These are some of the key case law principles that are statutorily referred to in Income Tax, Superannuation Guarantee Act, Goods and Services Act (GST) by the Australian Tax Office (ATO) and  Payroll Tax referred to by the State Revenue Office (SRO), Fairwork and Workcover regulations.

No.

CASE

MATTER
HEALTH AND LIFE THOUGHTS AND ARTICLES
1.

PROFESSIONALS ASSET PROTECTION i.e. service entities – Intention of parties

ALIENATION OF INCOME

SETTING COMMERCIAL SERVICE FEES – Relationship between professional and owners of a professional service entity

2.

DOCTORS INTELLECTUAL PROPERTY OWNERSHIP PROPERTY

Ownership in medical records as between doctors and owners of medical clinics – Intention of parties

CONTRACTS –
Relationship between doctors and owners of medical clinics – Property in medical records

DEEMED EMPLOYEE

Practice is the owner of the records.

No written agreements left relationship open to interpretation.

Doctors, staff and accountant interviewed for evidence and whether doctor took instructions from the practice.

Case note documentation, how patient data was collected, appointments made website and advertising held that the practice and not the doctors owned the records, and they were subcontracted in.

The practice was in control of the records.

3.

PROFESSIONALS ALIENATION OF INCOME

SETTING COMMECIAL –Relationship between the professional and owners of related entity. 

TAXPAYER ALLOWED A TAX DEDUCITION TO SHIFT INCOME TO A PRIVATE COMPANY AT A LOWER TAX RATE

The company was allowed to receive income on behalf of the company. This was the agreement between the individual and the company.

4.

High Court of Australia

NEGLIGENCE

Courier company liability for independent contractors negligence

DEEMED EMPLOYEE

Courier company public adverting and control of contractors deemed the company vicariously liable for the independent contractors negligence

5.

Independent Contractor

Who must make the offer

For taxation purposes the cased examined whether the sole trader or personal service or their provider e.g. recruitment firm (e.g. medical or healthcare practice service entity)

DEEMED INDEPENDENT CONTRACTOR

The Ruling states that the sole trader or PSE must make the offer or invitation not the service provider, as was the case in the Fortunatow decision. It further clarifies, with reference to Yalos Engineering Pty Ltd and Commissioner of Taxation [2010] AATA 408, that where an offer is clearly made by an individual in their capacity as a representative of the PSE to the client, then this element will be satisfied.

The service entity (or practice that is not the independent contractor) should not advertise for their services. The individual must.

6.

INCOME SPLITTING AND PAYROLL TAX

The Federal Tax Office on September 2014 announced that it is reviewing the common use of practice trusts and companies.

INDEPENDENT CONTRACTOR TEST

In 2014 we had provided income tax and payroll tax warnings to medical and healthcare practices

7.

DOCTORS PAYROLL TAX

CONTRACTS – 

Relationship between doctors and owners of medical clinic.

BANKING

All patient fees and money banked in one account including service fees.

ADVERTISING

Service entity did all the advertising.

DEEMED EMPLOYEE

Service entity “oral” agreement terms required all patient billings to be banked in the service entity bank account.

Individual radiologists were not marketing , only the service entity contracts

The advertising on its website which set out the names of “our staff” deemed an employment agreement

8.

Income Tax and Goods and Services Tax (GST) - Tribunal (NSW)

HKYB AND COMMISSIONER OF TAXATION (TAXATION) [2018] AATA 4770 (31 OCTOBER 2018) Brothel case.

SEX WORKER PAYG and INCOME TAX

CONTRACTS – Relationship between sex workers and accommodation owners of a brothel.

BANKING and RECORDS
All client fees and money banked in one account.

ADVERTISING
Service entity did all the advertising.

DEEMED EMPLOYEE

No contracts found, one bank account used to receive all client monies and pay sex workers.

Owners, accountant, book keeper and sex workers could not reconcile or explain service fee split calculations

Accountant should have reviewed the website for GST and Income Tax compliance

Owner had control of appointments.

Website advertised only one business and not each separate sex worker. Sex workers did not bring in their own clients. Owners promoted the business for the sex workers.

9.

Fairwork Commission (Tribunal) SA

INDEPENDENT CONTRACTOR PHYSIO UNFAIR DISMISSAL CASE PAYROLL TAX

CONTRACTS –
Relationship between physiotherapists and owner of clinic.

BANKING and RECORDS
All client fees and money banked in one account.

ADVERTISING
Employing entity did all the advertising.

DEEMED EMPLOYEE

Fairwork found to be an employment arrangement and not an independent contractor
 
Employer had no written contract. Had complete control over fees, rosters, no ability to delegate work. The employer’s bank account received all patient fees. The employee did not issue regular invoices to the practice.
 
The worker was not required to wear a branded uniform and used the practices invoices, stationary and letterhead.

10.

Payroll Tax - Supreme Court (Vic)

OPTOMETRISTS CONTRACTS –

Relationship between providers and owners of the clinics. Rosters, appointments, service fee calculations.

BANKING
All patient fees and money banked in one account including service fees.

Optometrists were not the primary business; it was from the sale of glasses. Providers were paid top up fees and a lack of separate banking and rosters deemed them “relevant contracts” liable for payroll tax. High Court rejected their appeal.

11.

Payroll Tax - Supreme Court (NSW)

CONTRACTS –
Relationship between doctors and owner of medical clinic. Top up payments

BANKING
All patient fees and money banked in one account including service fees.

DEEMED EMPLOYEE

Only guaranteed minimum payments were liable for payroll tax. Medicare income was excluded. This has since been overturned with the Naaz decision.

12.

Income Tax and Goods and Services Tax (GST) - Tribunal (NSW)

SEX WORKER PAYG and INCOME TAX

CONTRACTS –
Relationship between sex workers and accommodation owners of a brothel

BANKING and RECORDS
All client fees and money banked in one account.

ADVERTISING
Service entity did all the advertising.

DEEMED EMPLOYEE

The independent contractors (sex workers) were paid a percentage of the billings and were deemed employees and the business was liable for PAYG and GST plus penalties and back taxes.

Poor bookkeeping and their website threw their accountant and madam under the tax bus.

13.

DENTIST UNDER PAYMENT OF WAGES CLAIM

CONTRACTS –
Relationship between dentist and owners of dental clinic.

BANKING
All patient fees and money are banked in one account, including service fees.

ADVERTISING
Service entity did all the advertising.

GOODWILL
Saleable business?

DEEMED EMPLOYEE FOR SUPERANNUATION PURPOSES but REMAINS CLASSIFIED AS AN INDEPENDENT CONTRACTOR

Deemed employer liable for super

Service agreements too wide to deem an employee, free to work, he underwrote the business if there was insufficient cash flow. 

However, under the Superannuation Guarantee Act he was deemed an employee because he substantially provided labour services to the practice.  It was not a service facility agreement.

14.

INCOME SPLITTING

The Federal Tax Office on 1st July 2022 announced that it is reviewing the common use of practice trusts and companies.

INDEPENDENT CONTRACTOR TEST

In 2014 and 2022 we had provided income tax and payroll tax warnings to medical and healthcare practices 

15.

CONTRACT – Relationship between providers and owners of the clinics. Rosters, appointments, service fee calculations. Restraints of trade, after hours expectations.

BANKING
All patient fees and money banked in one account including service fees.

16.

CONTRACTS
Relationship between the parties

SUBSTANCE
Can the parties provide evidence the relationship is consistent with their written or verbal agreement?

DEEMED EMPLOYEE

High Court Ruling for clear written and signed contracts CFMMEU v Personnel Contracting 2022

If clear rights and obligations existing in an agreement, this has precedents over the “totality”decision. 

Contracts must be clear to the legal letter. Not a sham. Absolute focus on rights and obligations in the Act. 

They will not look any further than the agreement if their arrangement reflects what is occurring in practice.

17.

CONTRACTS
Relationship between the parties

SUBSTANCE
Can the parties provide evidence the relationship is consistent with their written or verbal agreement?

18.

CONTRACTS –
Relationship between Overseas Trained General Practitioner and owner of medical clinic. Claimed leave entitlements

Paid percentage of gross billings, was allowed to negotiate terms and conditions. No direct control of doctor

BANKING
All patient fees and money banked in one account including service fees.

GOODWILL
Saleable practice goodwill.

COMPETENCE
Ability to understand arrangements

Fairwork decided Dr Azad was an independent contractor. 

He was not an employee of the service trust. 

He was found to be an intelligent doctor who understood his arrangements. 

Fair work sometimes considers taxation arrangements. 

No direct integration with the service entity. The doctor was engaged by a separate unrelated practice company. There was no direct control or integration. 

There was separate banking. 

Was not forced to work.

19.

ATO Federal Tax Ruling

TR 2022/3 INCOME TAX: PERSONAL SERVICES INCOME AND PERSONAL SERVICES BUSINESSES –  GENUINE BUSINESS TEST PUBLIC OFFERING EXEMPTION 23 NOVEMBER 2022

PUBLIC OFFERING

“Who must make the ‘offer’

  1. The offer must be made by the sole trader or PSE.
  2. Where an offer is made by an individual and it is clear that the offer is made by the individual as a representative of the PSE, then the offer is considered to have been made by the PSE and this element of the test will be met.[81]

NOT A GENUINE BUSINESS

Providers who have their own website and actively market are a genuine personal service business.

20.

ATO Federal Tax Ruling

Law companion rulings and Practical compliance guidelines PCG 2022/D5

CONTRACTS
Documentation of relationship i.e. signed contracts with your providers. There must be an absence of coercion.

SUBSTANCE
Prove contracts are being implemented in practice. Do books and records and staff confirm arrangements?

RISK
Are significant risks being undertaken? Do they use their own tools of trade and delegate work?Does the risk commensurate with the return?

Goodwill
Does a saleable asset exist? Does the contractor separately advertise their services on an ongoing basis?

21.

Queensland State Reveue Office Payroll Tax Ruling

22 December 2022

The purpose of this public ruling is to explain the application of the relevant contract provisions in the Payroll Tax Act 1971 (Qld) (the Act) to an entity that conducts a medical centre business (referred to as a ‘medical centre’), including dental clinics, physiotherapy practices, radiology centres and similar healthcare providers who engage medical, dental and other health practitioners or their entities (‘practitioners’) to provide patients with access to the services of practitioners.

DEEMED EMPLOYEES

This has validated all our concerns about non-complying medical and healthcare practices.

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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