A Victorian Case with Payroll Tax implication for Medical Professionals
The Optical Superstore case is a recent court case in Victoria and it may have payroll tax implications for medical professionals operating a service entity under a service agreement.
Medical Professionals under a service agreement pay a service fee to the Service Entity and receive the balance of the patient fees as a Disbursement. The Optical Superstore case suggests that the Disbursement of the Patient Fees to the medical professionals other health professionals under a service agreement are akin to salary and wages and there for subject to payroll tax in Victoria.
The Case of Optical Superstore
In Victoria the Optical Superstore is a very well-known retailer of optometry products and services. The Optical Superstore Service Agreements conditions included a number of key feature as follows:
- Each optometrist us one of the consulting rooms within each store to supply optometry services;
- All of the fee paid by customers and Medicare for optometry services were paid into The Optical Superstore’s main service entity bank account and held on trust for the optometrist; and
- At the end of the month, the store would pay a “disbursement amount” to the optometrist. The disbursement amount was calculated from the optometrist timesheet that sowed the number of hours worked in the store with manager sign off, and an hourly rate was applied to these hours.
It was heard at both the Victorian Civil and Administrative Tribunal and the Supreme Court and they found in favor of The Optical Superstore and held the Disbursements not liable for payroll tax.
However it was then hear in the Court of Appeal and the decision was overturned. The Court of Appeal ruled the payments made to the optometrists were wages and subject to payroll tax under Victorian law. So even though the optometrists were not employees under common law the payments were considered to be akin to wages.
Most recently the High Court refused The Optical Superstore’s application to appeal the decision by the Court of Appeal ruling.
Why Disbursements were deemed to be wages?
The Court took into account the following factors in the outcome of case:
- The optometrist’s were paid based on hours worked – just like common law employees;
- The optometrist’s hours were approved by the store manager – just like common law employees;
- The patient fees paid by the customer or medicare were paid the the service entity bank account and not held in a separate bank account or sub-account; and
- There was a broad view taken by the judge on what forms a contract for work relationship. Here a contract for work means Disbursements are subject to payroll tax since there is a connection between the payment provided to the optometrist and performance of work or provision of labour.
What should medical professionals do now?
Firstly is important for all medical professionals to review their service agreements to ensure payments to medical professionals are not deemed to be wages and subject to payroll tax. While this case is based in Victoria the payroll tax law in Victoria is similar to other states.
When reviewing your Service Agreement you should the following examples of conditions which could indicate the disbursements made to employees may be subject to payroll tax:
- The medical practice requiring the medical practitioner to work set hours or attend the practice at set times and days each week;
- The medical practice issuing invoices to patients in its own name and ABN only;
- The medical practice receiving patient fees into the same bank account that it uses to pay expenses (ie: rather than paying into a separate bank account or sub-account);
- The medical practice paying a regular minimum amount to the medical practitioner based on hours worked;
- The medical practice promoting itself as the provider of medical services; and
- The medical practice promoting medical practitioners as staff or the practise.
How to avoid payments being akin to wages and potentially subject to payroll tax:
- Ensure the Medical Professionals operate through a Company or Trust rather than as a Sole Trader ABN:
- Do not pay Medical Professionals based on hours worked and a set hourly rate
- Do not offer a retainer or base remuneration rate x hours worked to Medical Professions.
- Promote the individual documents and ensure they each use their provider number.
- Set us individual bank accounts for each medical professional or direct patients fees to their bank account and invoice service fees in arrears
- Update your Service agreement to ensure there is no issues that could arise in relation to this case.
- Contact your Medical Accountant to organise a review of your current arrangement to ensure payroll tax does not apply to your Disbursements.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.