Over the past several years, medical practices across Australia have come under sustained scrutiny by state revenue authorities as governments move to close what they view as payroll tax avoidance through contractor arrangements. What initially focused on medical centres has now firmly expanded to include dental practices and allied health clinics.
The 2019 Optical Superstore decision in Victoria established that payments flowing through a practice to practitioners could constitute taxable wages. This approach was reinforced in NSW by the Thomas and Naaz decision (2021), which confirmed that amounts collected on behalf of doctors and remitted to them were subject to payroll tax, as they were payments “for or in relation to” the performance of work for the medical centre. The NSW Court of Appeal dismissed the final appeal in March 2023, cementing this interpretation.
Since then, revenue offices nationwide have embedded these principles into formal public rulings and audit programs. Authorities such as Revenue NSW, the Victorian State Revenue Office, and the Queensland Revenue Office now explicitly apply contractor payroll tax provisions to medical, dental, and allied health practices.
Dental Practices Are Now Directly In Scope
While early enforcement centred on general practices, dental clinics are now a clear compliance focus.
Queensland introduced a temporary payroll tax amnesty specifically for dental practices, allowing voluntary disclosures to wipe historical liabilities. That amnesty expired on 30 June 2025. Today, practices that failed to register are fully exposed to audits and severe backdated penalties, while those that did participate are strictly monitored for ongoing compliance from July 2025 onward.
In NSW and Victoria, state governments introduced audit pauses, tax rebates, and proportional exemptions—but these lifelines are strictly tied to Medicare bulk-billing income for General Practitioners. Because dental practices do not meet this criteria, they are entirely excluded from these relief measures. Audit activity in NSW has resumed in full force, and dental operators across the east coast are being aggressively reviewed under the exact same contractor principles that caught medical centres.
Considerations for payroll tax
When considering whether your dental practice may be subject to payroll tax, the precise flow of funds and operational structure are critical. Key factors to assess include:
Payment Flow: Are patient fees collected by your practice and then remitted to the associate dentist, or do patients pay the associate directly via multi-merchant terminals?
Infrastructure: Does your dental practice provide the use of rooms and facilities as a distinct service fee, or as a commercial lease?
Autonomy: Are the associate dentists required to use your specific practice facilities and systems, or do they exercise total discretion over how they conduct their own business?
Patient Ownership: Are the patients legally attributed to the associate dentist or to your overarching dental practice?
Operational Control: Does your dental practice exercise control over the associate dentist’s hours, leave, or treatment protocols?
At Prosperity, we provide a targeted payroll tax audit risk review specifically designed for dental practice operators. This review will analyze your current service agreements, internal processes, and the flow of patient income to identify exposure. Our recommendations ensure you remain fully compliant, helping you avoid devastating backdated penalties and allowing you to focus on delivering high-quality healthcare.
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.
