Over the past few years, medical practices have come under increased scrutiny by state revenue offices as state governments seeks to shut down the perceived loophole allowing medical centre operators to avoid payroll tax obligations for the practitioners operating from those centres. There are now rumblings that they will focus on dental practices!
Many dental practices have been setup in the same way as a medical practice creating increased scrutiny and payroll tax audits. This follows the decision from The Optical Superstore case in 2019 (VIC) which set off the precedent for successive east-coast state governments in subjecting health centre operators to payroll tax for the payments made to practitioners, with some operators facing backdated payroll tax liabilities and penalties ranging in the millions of dollars. This issue has been taken further resulting from the dismissal of the appeal of the Thomas and Naaz 2021 case (NSW) which upheld that payments collected on behalf of doctors and remitted were subject to payroll tax under the contractor provisions, as the payments to the doctors were for or in relation to the performance of their work for the medical centre.
The Queensland Commissioner of State Revenue has relied upon the outcome of the Thomas and Naaz case in forming their view in the December 2022 public ruling which has made even more important for Dental practices to review their current service agreements, internal processes, and flow of patient income. The NSW Court of Appeal had dismissed the appeal of the case on 14th March 2023, which means contracting dental associates will continue to be treated as employees for payroll tax. It is important that dental practice operators review their current arrangements to understand their exposure to payroll tax, particularly in NSW and VIC.
Considerations for payroll tax
When considering whether your dental practice may be subject to payroll tax, there are many factors to consider including:
- Does your dental practice provide use of rooms and facilities as a service or a lease?
- Does your dental practice exercise control over the associate dentist?
- Are the associate dentists required to use their own practice facilities to see and treat their patients, or do they have discretion on how they conduct their own business?
- Are the patients attributed to the associate dentist or to your dental practice?
- Are the patient fees collected and paid directly to the associate dentist, or are they collected by your practice and then remitted to the associate dentist?
At Prosperity, we provide a payroll tax audit risk review for dental practice operators. This review will include recommendations to ensure that you are fully compliant with your payroll tax obligations. This will help to avoid any potential penalties or prosecution and ensure you are well positioned to continue providing high-quality healthcare services to your patients.
If you have any questions regarding the above, contact Ashley Quinton at aquinton@prosperity.com.au or Director of Business Services and Taxation Brendan Campbell at bcampbell@prosperity.com.au. Alternatively, we have Specialist Health Sector Advisers in each of our offices. If you would like to speak to one in your location, call 1300 795 515.
