Tax Alert - New payroll tax guidance for medical centre businesses and contractors

Lowe Lippmann Chartered Accountants

New payroll tax guidance for medical centre businesses and contractors


The Victorian State Revenue Office (SRO) has recently released new guidance explaining the application of the contractor provisions in the Payroll Tax Act 2007 on an entity operating a medical centre business (the medical centre) that contracts with medical and health practitioners (the practitioners) to provide services to patients.


The guidance intends to provide greater clarity for entities that operate the medical centre, including dental clinics, physiotherapy practices, radiology centres and similar healthcare providers who contract with medical, dental and other health practitioners (or their entities) to provide patients with access to the services of the practitioners.


This new guidance is to be applied retrospectively and prospectively. However, we note this new guidance does not have the force of law, and each decision made by the SRO must be done on the merits of each individual case.

What is a ‘relevant contract’?


When a contract between a principal and a contractor is a ‘relevant contract’, the following treatment applies:

  • the principal who engages the contractor is deemed to be an employer;
  • the contractor is deemed to be an employee; and
  • payments made under the contract for the performance of work are deemed to be wages.


These deemed wages are subject to payroll tax where the services performed have the necessary nexus with Victoria, and this needs to be determined on a case-by-case basis.

Application of ‘relevant contract’ provisions to the medical centre


A contract between an entity that conducts the medical centre and a practitioner is a ‘relevant contract’ if all of the following factors apply:

  1. the practitioner carries on a business or practice of providing medical-related services to patients;
  2. in the course of conducting its business, the medical centre:
  3. provides members of the public with access to medical-related services;
  4. engages a practitioner to supply services to the medical centre by serving patients on its behalf; and
  5. an exemption (explained below) does not apply.


If a medical centre engages a practitioner to practise from its medical centre, or holds out to the public that it provides patients with access to medical services of a practitioner, it is likely the ‘relevant contract’ provisions will apply to the contract with the practitioner unless an exception applies.

What are the exemptions from the ‘relevant contract’ provisions?


Basically, if an exemption applies, no payroll tax liability under the ‘relevant contract’ provisions arises.


There are three exemptions which are more likely to apply to a contract between a medical centre and a practitioner, including:

  • The practitioner provides services to the public generally;
  • The practitioner performs work for no more than 90 days in a financial year; and
  • Services are performed by two or more persons.


When claiming an exemption, a medical centre must be able to substantiate the exemption with sufficient evidence.


Providing services to the public generally


A contract between a medical centre and a practitioner is not a ‘relevant contract’ in relation to a financial year if the Commissioner is satisfied the practitioner who provided the services under the contract ordinarily performs services of that kind to the public generally in that financial year.


To qualify for the first exemption, the practitioner must provide services of the same kind to other principals, such as other medical centres or hospitals.


If a practitioner practises at multiple medical centres but those centres are members of the same group for payroll tax purposes, the medical centre may not be entitled to the exemption.


To see example 3 from the guidance (click here).


Working for 90 days or less in a financial year


Under the second exemption, if a practitioner performs work under a contract for no more than 90 days during a financial year, the contract is exempt for that financial year. Each calendar day on which the practitioner performs work counts as 1 day, regardless of the time spent working on a particular day.


To see example 4 from the guidance (click here).


Services performed by two or more persons


This third exemption applies if the medical centre contracts with a practitioner, and the practitioner and at least one other person employed by or who provides services for the practitioner perform the work required under the contract.


The second person (ie. nurse, assistant) that provides services to or for the practitioner may be a company, but the work must be performed by a natural person.


The work performed by the second person must be work required to be performed under the contract between the medical centre and the practitioner.


This third exemption does not apply if:

  • the second person is engaged by the medical centre, not by the practitioner, to provide the services; or
  • the second person provides general business-related services that are not required to be provided to the medical centre under the relevant contract (ie. bookkeeping, accounting or business advisory services provided to the practitioner).


The guidance provides three basic examples to clarify that it is the practitioner (and not the medical centre) that must engage the ‘second person’.


To see examples 5, 6 and 7 from the guidance (click here).

Which payments are deemed to be wages?


Certain amounts paid or payable under a relevant contract by a medical centre are wages for payroll tax purposes if the payments are in relation to the performance of work (either directly or indirectly) relating to the ‘relevant contract’ by the medical centre.


Recent case law confirms that there will be an ‘indirect’ relationship where the contractual relationship included the following characteristics:

  • the doctors provided the services to patients;
  • the patients assigned their medical benefits to the doctors;
  • the medical centre, on behalf of the doctors, submitted the assigned claims for the medical benefits to Medicare;
  • Medicare paid those benefits to the medical centre; and
  • The medical centre retained 30% of the amounts received from Medicare and paid the remaining 70% to the doctors as the payments.


It does not matter that payments to a practitioner are paid from money received by the medical centre on behalf of practitioners, whether from patient fees or Medicare payments. When the practitioner’s entitlement is recognised and the money is paid or becomes payable, it constitutes wages for payroll tax purposes.


If a payment by a medical centre to a practitioner includes an amount that is not attributed to the performance of work, only the amount paid for the performance of work is subject to payroll tax.


Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.

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