In the past two years there have been considerable developments around Australia on the application of the relevant contract provisions in a number of jurisdictions in relation to the payroll tax legislation on contractors, especially those involved in professional structures such as medical, healthcare and similar arrangements.

There is now a real urgency to ensure compliance with the ‘relevant contract’ provisions given Queensland, New South Wales, Victoria and South Australia have now issued rulings on the application of payroll tax to medical and similar practices. An article issued by Accountants Daily on 16 August 2023 reported that:

The Royal Australian College of GPs said several regional practices had received retrospective payroll tax notices – including some for amounts over $600,000 – and with just 21 days to pay were now facing closure.

Let’s recount what is a relevant contract

As noted in DBA Payroll Tax Article – Part 3:

Section 32 of Division 7, Part 3 of the Payroll Tax Act 2007 (Vic) (PTA) provides:

• In this Division, a relevant contract in relation to a financial year is a contract under which a person (the designated person) during that financial year, in the course of a business carried on by the designated person—

1. supplies to another person services for or in relation to the performance of work; or
2. has supplied to the designated person the services of persons for or in relation to the performance of work; or …

Thus, a payment to a person is covered by the relevant contract provisions if paragraph (a) or (b) above are satisfied. Relevantly, the State Revenue Office of Victoria’s website states:

This covers most contractual arrangements between two persons each of whom supplies or receives such services in the course of a business.

Payments under these contracts are deemed to be wages (excluding GST). The principal who engages the contractor is deemed to be an employer who is liable for payroll tax on those wages.

The contractor provisions apply regardless of whether the contractor provides services via a company, trust, partnership or as a sole trader.

Section 35 of the PTA provides:

(1) …amounts paid or payable by an employer during a financial year for or in relation to the performance of work relating to a relevant contract … are taken to be wages paid or payable during that financial year.

This provision deems payments for relevant contracts to be wages for payroll tax purposes.

Fortunately, most Australian states and territories have harmonised many aspects of their payroll tax legislation. However, you still need to check the legislation in the appropriate jurisdiction to ensure you comply with the relevant rules; especially as each state and territory has established its own payroll tax rates, thresholds and registration criteria. Given this article is to provide an overview on payroll tax, unless express reference to a particular jurisdiction is made, our comments refer to the Victorian payroll tax legislation.

Queensland

The Commissioner of State Revenue of Queensland issued the public ruling Relevant Contracts — Medical Centres, PTAQ000.6.1 on 22 December 2022 (Qld P. Tax Ruling). The following useful extracts are copied from this ruling:

Application of relevant contract provisions to a medical centre

11. A contract between an entity that conducts a medical centre and a practitioner is a relevant contract under s.13B if all the following apply:

(a) the practitioner carries on a business or practice of providing medical-related services to patients

(b) in the course of conducting its business, the medical centre:

(i) provides members of the public with access to medical-related services

(ii) engages a practitioner to supply services to the medical centre by serving patients on its behalf

(c) an exemption under s.13B(2) does not apply.

13. 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 (i.e. exemption) applies.

The Queensland Government approved an amnesty until 30 June 2025 to encourage medical practices into compliance with their payroll tax obligations. Subject to eligibility requirements and successful application, the amnesty may provide relief for medical practices from payroll tax on payments to contracted general practitioners from 1 July 2018 to 30 June 2025. The amnesty period provides time for medical practices to make necessary adjustments to ensure ongoing future compliance. However, expressions of interest for the payroll tax amnesty closed on 10 November 2023.

The Commissioner of State Revenue of Queensland issued a second public ruling Relevant Contracts — Medical Centres, PTAQ000.6.2 on 19 September 2023. The ruling confirmed that out-of-pocket expenses and patient fees that are paid directly by a patient to a general practitioner for their services under normal business arrangements will not be subject to payroll tax.

NSW

The Chief Commissioner of State Revenue of New South Wales issued the public ruling Relevant Contracts – Medical Centres, PTA 041 on 11 August 2023 (NSW P. Tax Ruling).

The criteria for the application of relevant contract provisions to a medical centre are the same as what is found in the Qld P. Tax Ruling.

Following NSW P. Tax Ruling, the NSW Government passed the Revenue, Fines and Other Legislation Amendment Act 2023. The Act importantly contains a 12-month relief period on auditing general practitioner practices payroll tax. The pause also applies to both tax penalties and any accrued interest on unpaid payroll tax debts which have been incurred either prior to or at the date of assent.

Victoria

The Commissioner of State Revenue of Victoria issued the public ruling Relevant Contracts – Medical Centres, PTA-041 on 11 August 2023 (Vic P. Tax Ruling).

The section regarding the application of relevant contract provisions to a medical centre are also the same as what is found in the Qld P. Tax Ruling.

Recently, the Victorian Treasurer, promised in a letter to GPs to waive or reduce payroll tax bills for clinics at risk of insolvency where it is in the public interest to do so. The Treasurer stated that waiving or reducing the liability may only be granted where the clinic had engaged with the SRO to reach a settlement in good faith.

South Australia

The Commissioner of State Taxation for South Australia issued the public ruling Relevant Contracts – Medical Centres, PTASA003 on 30 June 2023.

Like Victoria and New South Wales, the section regarding the application of relevant contract provisions is uniform with the Qld P. Tax Ruling.

Similar to QLD, the SA Treasurer announced a temporary amnesty until 30 June 2024 to both encourage and support medical practices to comply with their payroll tax obligations. Subject to the eligibility requirements, the amnesty may provide relief for medical practices from payroll tax on payments to contracted general practitioners from 1 July 2018 to 30 June 2024. This provides time for medical practices to implement any required changes to ensure compliance with payroll tax obligations. However, applications for the payroll tax amnesty closed on 30 September 2023.

What’s happening in other jurisdictions?

The other jurisdictions are understood to be monitoring developments and further developments may evolve.

The payroll tax legislation around Australia is broadly harmonised and we recommend that where there is any risk that expert advice be obtained as soon as possible to consider the options. We are aware of substantial retroactive assessments that have issued. Therefore a proactive approach is prudent to minimise further interest, penalties and risk.

Can accountants advise on state/territory taxes

Registered tax agents and certain other advisers registered under the Tax Agents Services Act 2009 (Cth) (TASA) are authorised to provide tax advice relating to Commonwealth taxation law. However, TASA does not cover State or Territory laws such as stamp duty, land tax and payroll tax. Thus advisers who are not a qualified lawyer with a current practising certificate should be careful if providing such advice and make sure they state that they are not qualified to provide legal advice.

Conclusions

A review of contractor arrangements for every business, especially medical, healthcare and similar professional arrangements, is recommended to ensure they are supported by comprehensive written agreements and supporting legal opinion.

The recent rulings released by the Queensland, NSW, Victorian and South Australian revenue offices highlight the need for urgent review and appropriate corrective action to minimise risk and costs.

In addition to payroll tax, the following should also be considered:

• PAYG withholding tax
• Superannuation guarantee obligations especially given recent expansion in regards to contractors – refer: The application of SG to contractors clarified — Part 4
• Workcover insurance
• Employee entitlements such as annual and long service leave, unfair dismissal, etc
• Liability issues