The Flow of Money in Your Practice and its Implications

This is a blog written by You Legal—a team of legal professionals that focuses on YOU as they humanise the experience of engaging with lawyers. For any legal advice and concerns, you can visit their website here.

There has been an update on the QRO payroll tax ruling which affects the GP industry, and we decided to reach out to You Legal in order to explain the details from a legal standpoint.

We are grateful that Sarah from You Legal shared with us more information about the law, its effects, and their recommendations for doctors and practices to further support our clients and candidates by providing this blog. For any legal advice and concerns, you can visit their website here!

Unless you have been living under a rock or are very new to medical practice, you have most likely heard a lot of information about payroll tax over the past 12 months. It’s a hot topic, and there are a lot of industry commentators who are busily commentating on the issues for medical practices on the topic. There is so much to read, watch and listen to on the subject that you, like many others, may be overwhelmed and confused. 

Relevant Case Law

Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40 (‘Thomas and Naaz’) is a case that is often talked about in regard to payroll tax and medical practices, and justifiably so. It has recently resurfaced after the NSW Court of Appeal rejected Thomas and Naaz’s application to appeal the initial decision, which exposed Thomas and Naaz Pty Ltd to an almost $800,000 retrospective payroll tax bill. This was following the initial 2022 rejection of a tribunal appeal.

Although the application for leave to appeal was dismissed, the decision still provided some useful guidance for the many medical practices in Australia navigating the increasingly complex payroll tax landscape.

What can you learn from Thomas and Naaz?

The main commentary around Thomas and Naaz is about the doctors that were captured by the ‘relevant contract’ provisions of the Payroll Tax Act 2007 (NSW) (‘the Act’). The Tribunal said, for various reasons, that the way the doctors were engaged more closely resembled an employee-employer relationship, as opposed to a tenant or contractor relationship, and this determination was grounds for the $800,000 retrospective payroll tax bill. However, an important aspect of the case, not as talked about, is that the three contractors (who were not GPs) did not attract payroll tax and were not even considered by the court.

So, why didn’t the payments to these contractors attract payroll tax?

Well, it had to do with how the money flowed in the practice.

The majority of the doctors in Dr. Thomas’s practice were in an arrangement wherein Thomas and Naaz (the service entity) made a payment to them. Thomas and Naaz received the payments from the patients and then would pay the doctors 70% of the payment (deducting the 30% service fee). This flow of money was a key reason for the tribunal establishing that the contracts between Thomas & Naaz and the doctors were relevant contract under the payroll tax law.  Flowing the money in this manner is the most administratively convenient option, the other three contractors, who were allied health professionals, were in an arrangement that did not engage the payroll tax or ‘relevant contract’ provisions as there was no such ‘payment’ from the practice liable for payroll tax. 

The flow of money arrangement for these contractors was structured differently. They were paid fully by the patient and then remitted 30% back to the practice (as a service fee). Despite having relatively the same terms as the other doctors in the practice, their payments were not captured by the ‘relevant contract’ or considered by the tax audit. As stated by the Court, it was ‘clear from the position of the three practitioners who processed their own claims for Medicare benefits, there is a ready mechanism’ which avoids the payroll tax that may otherwise result under Division 7 Part 2 of the Act.

What does this mean for your practice?

This tends to indicate that if the contractor doctor receives payment from patients directly instead of billing via the medical practice, the practice may be able to avoid being found liable for a retrospective payroll tax bill. However, notable sections of the Act were not considered by the Court. For example, section 46 of the Act can deem payments from a third party to a contractor as that which was made by the deemed employer (i.e. considered to be ‘paid’ by the medical practice to the doctor) and therefore could potentially be subject to payroll tax.

There are other ways that some practices are flowing the funds, as a lot of clinic owners do not think this is practical for the way that their service entity operates.

It is not just about the flow…

Whilst the flow of money is important, it is not in isolation a ‘solution’. You also need accurately documented agreements that include a description of how the money will flow in your practice. Additionally, the decision emphasises that most, if not all, payments to medical contractors are likely to be caught by the ‘relevant contract’ provisions. Although there are exemptions to these provisions, they weren’t considered by the Court in Thomas and Naaz.

This should also be considered in light of recent State and Territory Revenue Office rulings and stances. The Commissioners for State Revenue in New South Wales, Queensland, South Australia, and Victoria have recently aligned their positions on the payment of payroll tax by issuing similar Rulings about health practices that engage health practitioners as independent contractors.  

In addition to issuing Rulings, payroll tax amnesties have been introduced in some States to provide adjustment time for practices. To be eligible for the amnesty, interested parties must register their expressions of interest by September 30 2023, in South Australia and by the recently extended deadline of November 10 2023, in Queensland.

Meanwhile, the ACT government has decided to exclude practices only if they bulk bill 65% of consultations, effective from September 1. In contrast, Western Australia has, at this stage, stated its intent not to pursue changes in payroll tax provisions, expressly confirmed in a letter to the Royal Australian College of General Practitioners. 

As for Tasmania and the Northern Territory, no relevant announcements have been made yet.

Our Recommendations

Although payroll tax laws are not identical across the States and Territories, the legislation in most states is largely harmonised. Therefore, this decision and the rulings continue to emphasise the need to review current arrangements with doctors regardless of which state you are in. It is essential that all medical practices review their current arrangements with doctors, including practice owners who are doctors. It is important to ensure that your contracts accurately reflect the full extent of the arrangement with the doctor and should be comprehensive and up to date. 

To minimise the risk of an unfavourable Payroll Tax Finding, it is recommended to take a thorough review of your arrangements with doctors who consult from your rooms. 

A review should cover the following areas:

  1. The Agreements the practice has with doctors 
  2. Banking and Practitioner Payment processes 
  3. Accounting Treatment of practitioner payments 
  4. Any tax audit insurance cover

We have covered other legal aspects that were considered by Thomas and Naaz in other articles.

Importantly, it is noted that the SRO, in an audit, would take into consideration the facts and circumstances of each individual arrangement. Therefore, we encourage owners of medical practices to contact their accountants and legal advisors if they have any concerns about the contractual arrangement that they have in place for the engagement of medical practitioners. 

Next Steps

Check out You Legal’s Fast Track Solution for ‘Legal Advice on the Flow of Money’ if you would like specific advice about the different options available to minimise your risks. Our lawyers will work with you to discuss the flow of money in your practice and advise on how to minimise the risk of being found liable for payroll tax in your state or territory. As this case has made very clear, the flow of money has a large influence on the risk of being found liable to pay payroll tax in your medical practice.

Note: The information presented above has been updated as of 2023-10-03.

We Can Help You

Here at People Medical Consulting, we have a passion for guiding medical practitioners through their career pathways to Australia. We have extensive experience in assisting medical facilities in recruiting doctors from local and overseas who will best suit their requirements.

We provide Document Assistance for those requiring support for their PESCI with IME, ACRRM or RACGP, registration and all other mandatory AHPRA requirements, fellowship program related forms and letters, application for Medicare provider and prescriber numbers, application for 19AB or 19AA exemptions and preparation of employment documents.

If you’re looking for assistance, contact us at and we would be glad to help you.

Information from this blog has been taken directly from You Legal’s article on their website.

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