On 23 August 2024, Revenue NSW released the anticipated guidance on the payroll tax relief to be provided to general practitioners (GPs) to ensure the cost of seeing a GP remains accessible under the NSW Government’s Bulk Billing Support Initiative announced in the 2024-25 NSW Budget.
The new payroll tax relief:
- waives any past unpaid payroll tax liabilities in relation to payments made to GP contractors up to 4 September 2024; and
- provides an ongoing payroll tax ‘rebate’ for contractor GPs at medical centres that meet requisite bulk-billing thresholds.
The Revenue Legislation Amendment Bill 2024 was assented to on 24 June 2024, and adds a new Division 2A into Schedule 2 of the Payroll Tax Act 2007 (NSW) (Payroll Tax Act), which provides for the new payroll tax relief.
The Commissioner’s Practice Note CPN 036 – Relief to Medical Centres (Practice Note), issued on 23 August 2024, explains in detail how and when the exemption and rebate will apply. The Practice Note also provides a number of examples of situations where medical centres will or will not be entitled to the new exemption and rebate.
The concern in relation to the cost of healthcare
A joint statement by the Treasurer, the Minister for Finance and the Minister for Health previously announced at the time of the NSW Budget noted that the Bulk Billing Support Initiative would protect bulk billing rates by reducing financial pressures on GP practices, minimising the need for GPs to pass on additional costs to patients.
According to a recent survey cited by the NSW Government, 72% of families and households across NSW are quite concerned or extremely concerned about the cost of healthcare, 48% of adults are cutting back on healthcare appointments due to affordability, and 37% of parents are cutting back on healthcare appointments for their children due to affordability. The proposed measures are expected to prevent price hikes of up to $20 per GP visit.
Due to affordability constraints, NSW Health estimates that a 1% decrease in bulk billing causes an additional 3,000 presentations to the state’s already strained hospital emergency departments.
It was announced in the 2024-25 NSW Budget that the NSW Government will invest an estimated $189 million in a bulk billing initiative aimed at relieving significant pressures over the cost of healthcare being felt by families and households across NSW.
Application of payroll tax to contractor GPs
Payroll tax at a glance
Payroll tax is a state-based tax paid by employers, assessed on gross Australian wages paid or payable to employees. Employers must pay payroll tax when their total Australian taxable wages are more than the annual payroll tax threshold. The threshold is currently $1.2 million. The current payroll tax rate in NSW is 5.45%, and is assessed on wages that exceed the payroll tax threshold in a financial year.
Payroll tax for contractor GPs
Under the contractor provisions in Division 7 of Part 3 of the Payroll Tax Act, if a contractor is engaged under a ‘relevant contract’, the contractor is deemed to be an employee, and payments made to the contractor are deemed to be wages, and thus liable to payroll tax. Many medical centres that engage contractor health practitioners fall within the ‘relevant contract’ rules and could potentially have large unpaid payroll tax liabilities owing.
Revenue NSW previously issued a payroll tax ruling PTA 041 ‘Relevant Contracts - Medical Contracts’ dated 11 August 2023 which provides the following guidance on when a relevant contract arises:
“A contract between an entity that conducts a medical centre and a practitioner is a relevant contract under section 32 of the (Payroll Tax Act) if all the following 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…:
-
- provides members of the public with access to medical-related services
- engages a practitioner to supply services to the medical centre by serving patients on its behalf
3. an exemption under section 32(2) of the Act does not apply.”
PTA 041 also provides:
“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 (that is an exemption) applies.”
Thomas and Naaz proceedings left medical centres vulnerable to unpaid payroll tax liability
The issue of liability to payroll tax for payments to contractor GPs has been causing issues for medical centres since the beginning of the Thomas and Naaz proceedings in 2018. The NSW Civil and Administrative Appeals Tribunal’s (NCAT’s) decision in that case left medical centres vulnerable to years’ worth of unpaid payroll tax liability.
In Thomas and Naaz, the taxpayer, an operator of medical centres, engaged medical contractors under a facilities and services-type arrangement. Under the arrangement, the taxpayer provided medical contractors with access to its medical centres, nursing and administrative staff, and billing support in exchange for a fee (being 30% of the Medicare benefits that were earned by the contractors). Instead of finding that the taxpayer operated a business of providing facilities and services to doctors (which would be consistent with the provisions of the facilities and services arrangements), the Court determined that the taxpayer operated a ‘medical centres business’.
NCAT’s decision at first instance (which was not overturned on appeal) was that the agreements between the taxpayer and the doctors were ‘relevant contracts’ under section 32 of the Payroll Tax Act, because the agreements secured the provision of the services of the doctors to the patients of the taxpayer’s medical centres, those services were work-related, and none of the exemptions to the ‘relevant contract’ provisions applied. Therefore, the assessments to payroll tax made by the Chief Commissioner of State Revenue were upheld.
In 2023, the NSW Court of Appeal dismissed an application by the taxpayer to appeal the NCAT decision in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue (NSW) [2023] NSWCA 40. The key takeaway from Thomas and Naaz is that most (if not all) medical contractor relationships in health care centres are likely to be captured by the ‘relevant contract’ rules of the Payroll Tax Act and are therefore subject to payroll tax. You can read our detailed alert on the Thomas and Naaz decision here.
The NSW Government’s new relief measures for medical centres
Retrospective payroll tax waiver
NSW will be the first state to legislate a full retrospective waiver for past unpaid payroll tax liabilities for contractor GP wages. This builds on the 12-month pause on payroll tax audits, and penalties and interest on unpaid payroll tax debts that was legislated in September 2023.
Section 10D of Schedule 2 to the Payroll Tax Act now provides an exemption from payroll tax for relevant GP wages before 4 September 2024, unless payroll tax has already been paid on those wages. If payroll tax has already been paid in respect of relevant GP wages, the employer is not entitled to a refund of that tax.
The Practice Note confirms that the bulk-billing thresholds applicable to the ongoing payroll tax rebate (see below) do not apply to the retrospective waiver.
Ongoing payroll tax rebate
The NSW Government is providing an ongoing payroll tax rebate for contractor GP wages to clinics with bulk billing rates of at least 80% in metropolitan Sydney, and 70% in the rest of the state (the relevant proportion): section 10B(2) of Schedule 2 to the Payroll Tax Act.
Employers will be entitled to a full rebate of payroll tax in relation to relevant GP wages paid on or after 4 September 2024. The rebate may be given either as a refund, or as an offset against other payroll tax liabilities: section 10C of Schedule 2 to the Payroll Tax Act.
The Practice Note provides the following guidance in relation to the ongoing payroll tax rebate:
(a) Whether a medical centre meets the relevant proportion is determined by reference to the total number of GP services that are bulk billed as a proportion of the total number of GP services provided at the medical centre, including services provided by employee GPs.
(b) The rebate only applies to wages paid or payable to contractor GPs and not on wages paid or payable for GP services provided by employee GPs.
(c) Where an employer operates across multiple locations, the relevant proportion and entitlement to the rebate is determined having regard to GP services at each location.
(d) Medical services provided to patients where the cost is covered by an arrangement other than Medicare (for example, by the Department of Veteran Affairs or a workers compensation insurer) are not considered to be bulk billed.
(e) Wages paid to trainee GPs are not eligible for the rebate.
As such, medical centres must maintain sufficient records to enable Revenue NSW to calculate the amount of the rebate for a particular financial year, including:
- the number of GP services provided that are bulk billed or not bulk billed;
- if an employer operates more than one medical centre – the locations where GP services are provided;
- how wages paid to GP contractors who work at more than one location have been pro-rated;
- relevant GP wages for the financial year;
- payroll tax payable for the financial year when the relevant GP wages are included; and
- payroll tax payable for the financial year when the relevant GP wages are not included.
Next steps
Medical practices should consider their eligibility to benefit from the new payroll tax relief measures and the potential impact of the changes under the Payroll Tax Act on their business.
Should you wish you discuss the application of the new payroll tax measures to your business, please contact us and we would be happy to assist.
