Medical centres, including dental clinics, physiotherapy practices, radiology and similar healthcare providers who contract with medical, dental, and other health practitioners or their entitles to provide patients with access to the services of practitioners may be subjected to payroll tax.

What has happened?

Recent rulings indicate that the courts and the Victorian State Revenue Office (SRO) are of the view that a contract between a principal (medical centre) and a contractor (health practitioner) may be deemed as the relevant contract under the applicable laws. If it applies, then the principal who engages the contractor is deemed to be an employer and the contractor is deemed to be an employee. Therefore, payments made under the contract for the performance of work will be deemed as wages and thus subject to payroll tax.

Generally, the health practitioner will issue the patient with an invoice for services rendered and the medical centre collects this fee, following which the medical centre will deduct the necessary management charges (room hire, support staff and administration levy) from this fee and transfer the balance to the health practitioner. It follows that this transaction may be subject to payroll tax.

How will this impact medical centres?

As most medical centres run on slim pickings, the burden of payroll tax on these transactions may tip them over the edge. For example, a practice with $9million in patient fees per year, disbursing $3million to health practitioners could face an annual payroll tax bill of almost $145k in Victoria.

We are aware that the SRO has started a program to review all medical centres and have begun to issue payroll tax bills running into the hundreds of thousands of dollars. This will no doubt place financial strain on medical centre operators and health practitioners, who will be under pressure to increase rates to offset the increased payroll tax costs.

How can Charles & Co. help you?

Our Team with more than 50 years combined experience is well placed to help businesses and individuals in a range of challenging and distressed situations. We encourage anyone experiencing financial and/or operational distress to contact us to discuss your options.