It’s time to review your practice arrangements - How to avoid service entity payroll tax blunders

It’s likely that you are using service arrangement models with the doctors who treat patients at your medical practice.

Under these arrangements a medical practice provides administrative assistance and other business services, enabling the doctor to conduct their business of treating patients. Recent activity by the state revenue authorities in both VIC and NSW especially have put medical practices and their service agreements under the spotlight when it comes to payroll tax.

We are currently awaiting further guidance on the application of payroll tax from the relevant state authorities, but you don’t need to. There are some common mistakes that practices have made (during payroll tax reviews) that you can learn from now.

Common payroll tax blunders for medical practices:

1. Poorly drafted Service Agreements – Like any contract or agreement, it’s only as sound as the information included in it. Now is the time to review these agreements and seek advice to ensure your practice is not exposed.

2. Banking and practitioner payment processes – A practice should not bank a doctor’s patient fees into its everyday transactional bank account. The everyday bank account should be reserved for the running of the practice and paying its running expenses only.

3. Accounting treatment of practitioner payments – Check how you are reporting this on the profit and loss statement of the practice. Incorrectly disclosing medical practitioner patient fees is likely to increase your risk of a payroll tax review.

4. Document that doctors work elsewhere – Doctors working elsewhere and providing services to the general public outside of the practice may potentially be exempt.

5. The medical practice paying a regular ‘guaranteed’ minimum amount to a medical practitioner – The payment of a minimum retainer can be perceived as a payment of salary and wages and may fall into the definition of ‘wages’ for payroll tax.

6. The medical practice promoting medical practitioners as staff or contractors – This is a simple, yet common mistake made by many medical practices. Practices should review all advertising channels, such as their website and social media, and update as required.

This is by no means an exhaustive list of items to address. However, these items can be seen in many recent payroll tax cases and should not be ignored.

So, what do you need to do? Now is the time for medical practices to act by doing a thorough review of their operations, arrangements, and potential areas of exposure to reduce the risk of an adverse payroll tax finding.

A review of the following key areas should be undertaken:

1. Practitioner Service Agreements

2. Banking and practitioner payment processes

3. Accounting treatment of practitioner payments

4. Documentation stating that doctors work elsewhere

5. Advertising channels, including website and social media

6. Tax audit insurance policies covering state payroll tax reviews.

Learn more via AusDoc https://www.ausdoc.com.au/news/payroll-tax-this-is-the-biggest-existential-threat-to-general-practice/

If you believe your practice may be impacted by some of the points raised in this article, please contact us to speak to an advisor.