The Victorian State Revenue Office (VSRO) has been auditing and litigating against health care clinics, such as doctor, optometrist and radiologist clinics, over payroll tax liabilities.
Payroll tax is levied on the Victorian wages (or deemed wages) payable by an employer (or group employer) to the employees (or deemed employees and designated contractors) if the total taxable Australian wages exceed $550,000 per annum.
Tax advisers generally consider that payments by a clinic to the health practitioner or health practitioner’s company or trust, which leases rooms from which the health practitioner provides health services to patients and engages the clinic to provide administrative services, do not constitute wages subject to payroll tax.
An example of a standard arrangement is:
Under the arrangement, the health practitioner provides services to patients of the health practitioner with the clinic collecting patient payments on behalf of the health practitioner or the health practitioner’s company or trust, deducting room leasing and administration services fees, and paying the balance to the health practitioner or the health practitioner’s company or trust under carefully written legal documents.
The VSRO considers payments by the health care clinic to the health practitioner or the health practitioner’s company or trust are wages subject to group payroll tax (Ruling PTA.017).
However, the Supreme Court of Victoria in CSR (Vic) v The Optical Superstore P/L  VSC 524 held that clinic payments of patient consultation fees to an optometrist’s company or trust, and any reimbursement of rental and administration fees where minimum consultation fee income was not derived by the optometrist, were not wages subject to group payroll tax because the clinic merely collected and returned the patient fees on behalf of the optometrist. It awaits to be seen whether the VSRO will appeal the decision to the Court of Appeal. The decision is also significant in that it can be treated as authority in each of Victoria, New South Wales and Queensland, which have harmonised payroll tax provisions, so it may result in changes in administrative practices of the revenue authorities in each of those States.
Important to the decision is that the patients are those of the health practitioner and not of the clinic.
The VSRO considers payments by the health care clinic to the health practitioner or the health practitioner’s company or trust in respect of the patients of the clinic are labour hire payments subject to employment agency payroll tax.
If an employment agent under a formal, informal, expressed or implied employment agency contract by arrangement procures the services of a service provider for a client of the employment agent, the employment agent is deemed an employer, the service provider is deemed an employee, and the payment by the employment agent to the service provider is deemed wages subject to payroll tax.
Winday International P/L v CSR (NSW)  NSWCATAD 270 held that clinic payments of patient consultation fees to radiologists or the radiologist’s company or trust by the clinic were deemed wages under an employment agent contract because the patient consultation fees were received in the clinic’s business from services of the radiologist procured for the clinic’s patients.
Important to the decision was that the patients are those of the clinic and the patient consultation fees were received in the clinic’s business and not on behalf of the radiologists.
UNSW Global P/L v CSR (NSW)  NSWSC 1852 held that the payments of an employment agent to a service provider were not wages unless the service provider provides services in the conduct of the labour agent’s client’s business.
Importantly, Winday International P/L v CSR (NSW) may be wrong because the radiologist’s services were provided to private patients and not in the patient’s business.
The VSRO considers clinic company dividends and trust distributions to or in respect of an employee, designated contractor or labour hire service provider are deemed wages subject to payroll tax unless clearly made in the capacity as owners in the accounts (Bulletin PTX-01-11).
Murdoch v CSR (Vic)  HCA 22 held that trust distributions to persons who are within the class of employee beneficiaries from the trust’s business income were wages subject to payroll tax.
Freelance Global Ltd v CSR (NSW)  NSWSC 127 held that a trust distribution to an employment agent’s service provider were deemed wages to the employment agent’s service provider procured for the clients of the trust employment agent.
Accordingly, clinic payments to health practitioners or the health practitioner’s company or trust by clinics that have been correctly structured with carefully drafted and appropriate legal documentation should not be subject to payroll tax.