Relevant Contracts – Medical Centres

Status: Current - this Revenue Ruling replaces PTASA003 to ensure harmony with Victoria and New South Wales and has been updated to incorporate the latest developments in the Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue matter, and rectify minor incorrect legislative references.
Version Number: 1
Legislation: Payroll Tax Act 2009
Date Issued:  22 November 2023

Revenue Rulings do not have the force of law.

Preamble

This revenue ruling has been issued to provide guidance to medical centre businesses and reflects the position of RevenueSA. This ruling should not be interpreted as a change in position or interpretation.

A contract between a principal and a contractor may be a ‘relevant contract’ under the contractor provisions in Division 7 of Part 3 of the Payroll Tax Act 2009 (“the Act”).

If the contract is a relevant contract, the principal who engages the contractor is deemed to be an employer (section 33 of the Act), the contractor is deemed to be an employee (section 34 of the Act) and payments made under the contract for the performance of work are deemed to be wages (section 35 of the Act). Deemed wages are wages (section 13(e) of the Act) and are taxable in South Australia if they meet the nexus provisions under section 11 of the Act. Taxable wages are subject to payroll tax (section 6 of the Act).

The purpose of this revenue ruling is to explain the application of the relevant contract provisions in the Act to an entity that conducts a medical centre business (referred to as a ‘medical centre’), including dental clinics, physiotherapy practices, radiology centres and similar healthcare providers who contract with medical, dental and other health practitioners or their entities (‘practitioners’) to provide patients with access to the services of practitioners.

This revenue ruling incorporates the decisions in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259 (“the Thomas and Naaz case”) and the Commissioner of State Revenue (Vic) v The Optical Superstore Pty Ltd [2019] VSCA 197 (“the Optical Superstore case”), which considered the application of the relevant contractor provisions in the context of arrangements between medical and optometry centres and practitioners.

Ruling

Liability for payroll tax

Part 2 of the Act imposes liability for payroll tax. Whether there is a payroll tax liability will depend on the particular facts and circumstances of each matter.

Generally, payroll tax is payable by employers on all taxable wages paid to a common law employee (Part 2 Division 1 of the Act).

Where there is no common law employer–employee relationship, liability for payroll tax will arise if it is established amounts are paid under a relevant contract to a contractor (Part 3 Division 7 of the Act).

Where there is no common law employer–employee relationship or no relevant contract involving a contractor, liability may still arise if it is established amounts are paid under a ‘employment agency contract’ to a service provider (Part 3 Division 8 of the Act).

If liability for payroll tax arises due to the operation of Part 3 Division 7 or 8 of the Act, there are deeming provisions that apply to bring contractors and employment agents within the operation of Part 3 Division 1 of the Act.

Under Part 2 Division 1, employers are liable to payroll tax on wages paid by common law employers to employees. The definition of ‘wages’ includes amounts paid ‘to an employee as an employee’. The term ‘employee’ is not defined in the Act, therefore common law employment tests apply to determine whether a worker is an employee. For further details refer to Revenue Ruling PTA038 Determining whether a worker is an employee.

In many cases, the common law employer tests can be difficult for businesses to apply to accurately assess their liability when they engage contractors. Further, it was recognised the increasing use of contractor arrangements to convert common law employees to contractor arrangements provided increased opportunities for revenue avoidance. As a result, the Act includes contractor provisions (Part 3 Division 7).

Consequently, the definition of ‘wages’ also includes an amount taken to be wages under another provision of the Act. Therefore, in addition to wages paid to a common law employee under Division 1, Division  7 makes payments to contractors providing services under a relevant contract liable to payroll tax unless one or more exemptions in Division 7 apply. The Division 7 exemptions are designed to exclude payments to certain contractors.

This has the result that if the contract is a relevant contract, the principal is deemed to be an employer, the contractor is deemed to be an employee and payments made under the contract for the performance of work are deemed to be wages unless an exemption applies.

Application of relevant contract provisions to a medical centre

A contract between an entity that conducts a medical centre and a practitioner is a relevant contract under section 32 of the 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:
   1. provides members of the public with access to medical-related services
   2. 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.

Under section 31 of the Act, ‘contract’ includes an agreement, arrangement or undertaking, whether formal or informal and whether express or implied.

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.

A practitioner engaged by a medical centre to serve patients for or on behalf of the medical centre under a relevant contract supplies services to the medical centre as well as to patients. (Seethe Optical Superstore case).

Separate businesses conducted by medical centres and practitioners

Under a relevant contract, the medical centre and each practitioner engaged by the medical centre conducts separate but related businesses (see, for example, Commissioner of Taxation v Healius Ltd [2020] FCAFC 173 at 32). The medical centre provides patients with access to medical services provided by practitioners. The medical centre also provides services and facilities to the practitioners and patients by attracting patients, advertising the services offered by practitioners, managing the services provided to patients including arranging appointments and billing patients either directly or by bulk billing Medicare, and maintaining patient records.

Practitioners have professional responsibility for the medical care and advice they provide to patients. The services provided by practitioners are provided in the course of their own business. However, the medical centre has operational or administrative control over the practitioners if it is able to influence matters such as who practices at the centre, the hours and days when they practice, and the space within the centre where that occurs.

When is a contract a relevant contract?

A contract is a relevant contract under section 32(1) of the Act if it provides for the supply of services ‘in relation to the performance of work’ by one party for or on behalf of the other party unless one of the exemptions in section 32(2) of the Act applies. The reference to services ‘in relation to the performance of work’ is satisfied if the services performed under the contract are work-related.

The requirement that a practitioner supplies services to a medical centre is satisfied if the practitioner serves patients for or on behalf of the medical centre. This principle has been endorsed by the High Court in Accident Compensation Commission v Odco Pty Ltd [1990] HCA 43; (1990) 95 ALR 641 at 652 (paragraph 30) concerning similar Victorian legislation regulating workers’ compensation. This principle has also been applied by courts and tribunals in a range of industries¹ including cases involving medical centres.²

The matters generally dealt with in a contract between a practitioner and a medical centre are listed in Attachment 1. However, each contract must be considered individually on a case-by-case basis to determine whether it is a relevant contract. If the contract provides, either expressly or by implication, that a practitioner is engaged to supply work-related services to the medical centre by serving patients for or on behalf of the medical centre, the contract is a relevant contract under section 32(1) of the Act.

Recent decisions

The terms and conditions of contracts held to be relevant contracts under equivalent provisions to section 32(1) of the Act in two recent decisions are summarised below:

Engaging a practitioner from practitioner’s entity

In some cases, a practitioner’s services may be obtained under a contract between a medical centre and a related entity (such as a company) established by the practitioner (practitioner’s entity). A practitioner may be engaged by the practitioner’s entity either as a contractor or as an employee.

Exemptions from relevant contract provisions under section 32(2) of the Act

If an exemption applies under section 32(2) of the Act, no payroll tax liability under the relevant contract provisions arises.

Under section 32(2) of the Act, the three exemptions more likely to apply to a contract between a medical centre and a practitioner are:

1. The practitioner provides services to the public generally—section 32(2)(b)(iv) of the Act.
2. The practitioner performs work for no more than 90 days in a financial year—section 32(2)(b)(iii) of the Act.
3. Services are performed by two or more persons—section 32(2)(c)(i) of the Act.

When claiming an exemption, a medical centre must be able to substantiate the exemption with sufficient evidence.

Exemptions from the relevant contract provisions under section 32(2) of the Act

Providing services to the public generally—section 32(2)(b)(iv) of the Act

A contract between a medical centre and a practitioner is not a relevant contract in relation to a financial year if the Commissioner is satisfied the practitioner who provided the services under the contract ordinarily performs services of that kind to the public generally in that financial year. Prior to claiming this exemption, the principal (medical centre) is required to apply to the Commissioner for a determination (unless using the 10 days or less per month method). The exemption is explained in Revenue Ruling PTA021 Contractors who ordinarily perform services to the public.

To qualify for the exemption, the practitioner must provide services of the same kind to other principals, such as other medical centres or hospitals. The provision of services to patients for or on behalf of a single medical centre may not satisfy the requirement that services are provided to the public generally (see, for example, the Thomas and Naaz case. If a practitioner practises at multiple medical centres but those centres are members of the same group for payroll tax purposes, the medical centre may not be entitled to the exemption (see Revenue Ruling PTA021).

Working for 90 days or less in a financial year—section 32(2)(b)(iii) of the Act

If a practitioner performs work under a contract for no more than 90 days during a financial year, the contract is exempt for that financial year. The exemption is explained in Revenue Ruling PTA 035 V2 Contractors - 90 Day Exemption.

Each calendar day on which the practitioner performs work counts as 1 day, regardless of the time spent working on a particular day. For more details refer to Revenue Ruling PTA014 What constitutes a day’s work.

Services performed by two or more persons—section 32(2)(c)(i) of the Act

This exemption applies if a medical centre contracts with a practitioner, and the practitioner and at least one other person employed by or who provides services for the practitioner perform the work required under the contract.

The second person that provides services to or for the practitioner may be a company, but the work must be performed by a natural person.

The work performed by the second person must be work required to be performed under the contract between the medical centre and the practitioner.

The exemption does not apply if:

1. the second person is engaged by the medical centre, not by the practitioner, to provide the services; or
2. the second person provides general business-related services that are not required to be provided to the medical centre under the relevant contract (for example: tax, accounting or business advisory services provided to the practitioner).

This exemption is explained in Revenue Ruling PTA 023 Contractors Engaging Others. A practitioner or the practitioner’s entity that employs or engages another person in the course of a business carried on at a medical centre may be grouped with the medical centre under section 71 of the Act (groups arising from the use of common employees).

Who is the employer under section 33 of the Act?

Section 33(1) of the Act deems the employer under a relevant contract to be the person:

1. who supplies services to another person; or
2. to whom the services of persons are supplied.

Section 33(1)(c) of the Act applies to a person who gives goods to individuals and is not generally applicable in relation to contracts involving medical centres.

If both subsections (a) and (b) under section 33(1) of the Act apply to a relevant contract, section 33(2) of the Act provides the person who is supplied with the services of another person is deemed to be the employer.

Applying section 33(1)(b) of the Act to a relevant contract between a medical centre and a practitioner, the medical centre is taken to be the employer because it receives the services of the practitioner who serves the patients. Those services are work-related because the practitioner performs work in the course of supplying the services. (See, for example: Accident Compensation Commission v Odco Pty Ltd [1990] HCA 43; (1990) 95 ALR 641 at 652 (paragraph 30); The Optical Superstore Pty Ltd v Commissioner of State Revenue [2018] VCAT 169 at [82].)

Who is the employee under section 34 of the Act?

Under section 34(a) of the Act, a person who performs work in relation to which services are supplied to another person under a relevant contract is taken to be an employee.

Section 34(b) of the Act only applies to a relevant contract under which goods are resupplied.

Under a relevant contract between a medical centre and a practitioner, the practitioner, being the person who performs the work required under the contract, is taken to be the employee (see, for example: The Optical Superstore Pty Ltd v Commissioner of State Revenue [2018] VCAT 169 at [82]; Homefront Nursing Pty Ltd v Chief Commissioner of State Revenue [2019] NSWCATAD 145 at [46]). If the relevant contract is between a medical centre and a practitioner’s entity, and the practitioner’s entity engages the practitioner to provide services under a separate contract with practitioner, the practitioner is taken to be an employee under section 34 of the Act.

Which payments are deemed wages under section 35 of the Act?

Under section 35(1) of the Act amounts paid or payable under a relevant contract by a medical centre (the deemed employer) are wages for payroll tax purposes if the payments are in relation to the performance of work relating to the relevant contract by the deemed employee.

The phrase ‘in relation to work’ requires either a ‘direct’ or ‘indirect’ relationship between the payment and the performance of work (see Commissioner of State Revenue (Vic) v The Optical Superstore Pty Ltd [2019] VSCA 197 at [65]). In Thomas and Naaz the Tribunal decided (at [67]–[68]) that there was such an ‘indirect’ relationship where the contractual relationship included the following characteristics:

1. the doctors provided the services to patients;
2. the patients assigned their medical benefits to the doctors;
3. Thomas and Naaz, on behalf of the doctors, submitted the assigned claims for the medical benefits to Medicare;
4. Medicare paid those benefits to Thomas and Naaz; and
5. Thomas and Naaz retained 30% of the amounts received from Medicare and paid the remaining 70% to the doctors as the payments.

It does not matter that payments to a practitioner are paid from money received by the medical centre on behalf of practitioners, whether from patient fees or Medicare payments, even if the practitioner is beneficially entitled to that money (see Commissioner of State Revenue (Vic) v The Optical Superstore Pty Ltd [2019] VSCA 197 at [67]). When the practitioner’s entitlement is recognised and the money is paid or becomes payable, it constitutes wages for payroll tax purposes.

Third party payments taken to be wages under section 46 of the Act

Under section 46 of the Act, ‘third party payments’ of money or other consideration may be taken to be wages paid or payable by an employer to an employee. This provision applies to a third-party payment under a relevant contract that would be wages if paid by an employer to an employee under the contract.

A person taken to be an employer under section 33 of the Act is taken to be an employer under section 46 of the Act, and a person taken to be an employee under section 34 of the Act is taken to be an employee under section 46 of the Act.

A third-party payment may consist of:

1. a payment by a person other than a deemed employer to a deemed employee
2. a payment by a deemed employer to a person other than a deemed employee
3. a payment by a person other than a deemed employer to a person other than a deemed employee.

Other matters

Tenancy contract that is not a relevant contract

Under a tenancy contract, a landlord (who may be a sub-lessor) by lease or licence provides a practitioner with use of a suite or space in, for example, a building from which the practitioner conducts their own independent medical practice. The tenancy contract will reference the specific space being leased or licensed and generally includes provisions for fit-out and alterations to accommodate the practitioner’s requirements and services such as building maintenance and signage for the practitioner’s operating hours.

A tenancy contract is not a relevant contract if the practitioner does not supply work-related services to patients for or on behalf of the landlord. In these circumstances, the practitioner must operate their own independent medical practice responsible for such matters as advertising and attracting patients, providing medical services to their own patients (that is, not for or on behalf of anyone else), managing patient appointments and records and directly submitting claims for medical benefits to Medicare; with Medicare paying those benefits to the practitioner (or the practitioner’s entity).

If a tenancy contract refers to a medical centre as a ‘landlord’ and the practitioner as a ‘tenant’, but in substance the practitioner is providing medical services for or on behalf of the medical centre to its patients, the tenancy contract is more likely to be a relevant contract.

A contract with an administration entity may be a relevant contract

Multiple medical practices conducted by individual practitioners may operate from the same premises and use the same entity that provides administration and support services (administration entity) to practitioners. A contract with the administration entity may be a relevant contract depending on the terms and conditions of each contract. In some cases a contract may be a relevant contract under section 32(1) of the Act, but an exemption may apply under section 32(2) of the Act. The terms and conditions of each contract must be considered on a case-by-case basis having regard to ‘When is a contract a relevant contract?’ above.

Grouping of practitioners and administration entities

An entity that provides administration services only to practitioners may be grouped with practitioners or the practitioners’ entity under Part 5 of the Act. Revenue Ruling PTA017 Grouping of professional practices and administration businesses explains the application of the grouping provisions to professional practices and service entities.

Reference to practitioner being ‘principal’ not determinative

A contract between a medical centre and a practitioner may state the practitioner is the principal, and/or the medical centre only provides administrative services to the practitioner. Such clauses do not prevent the application of the relevant contract provisions if the medical centre is able to exercise operational or administrative control over the services provided to patients, or is able to exercise operational or administrative control over a practitioner to influence decisions about who practises at the centre, when they practise, and the space within the centre where that occurs. The manner in which the parties describe or label their relationship in contract cannot change the character of the relationship established by their rights and obligations.³

Medicare provider number

A practitioner, being an eligible health professional, must apply for a unique Medicare provider number (MPN) to provide services listed under the Medical Benefits Schedule (MBS) and, where eligible, refer patients to relevant specialists and/or consultant physicians and request certain imaging and pathology services. Further, an MPN is required to access and claim Medicare services and benefits. Only an eligible health professional, being a natural person, can be a granted an MPN meaning the medical services under the MBS are provided by a practitioner to a patient.

The MPN requirement does not alter the outcome that, under a relevant contract, where a practitioner is engaged by a medical centre to serve patients for or on behalf of the medical centre, the practitioner is still providing medical services to the medical centre and to the patients, consistent with the principles determined in the Optical Superstore Case and the Thomas and Naaz Case.

Records must be kept for at least 5 years

Medical centres must keep records that enable their tax liability under the Act to be properly assessed and must keep the records for a minimum of 5 years after the end of the financial year in which wages were paid or became payable (see Part 8 of the Taxation Administration Act 1996).

An employer who disputes the correctness of a payroll tax assessment in an objection to the Commissioner of State Taxation or an appeal to the Supreme Court bears the onus of proving the assessment was incorrect on the balance of probabilities (see sections 85 and 97 of the Taxation Administration Act 1996).

Date of effect

This public ruling takes effect from 22 November 2023.

History

Attachment 1

Contracts between medical centres and practitioners

The contract between a medical centre and a practitioner or the entity through which their services are provided, generally deal with the following matters:

1. The medical centre and the practitioner agree that the practitioner will provide competent, professional medical services to patients.
2. The agreement can be terminated by either party by giving notice as specified in the contract.
3. The practitioner is engaged as a contractor, is solely responsible for medical advice or medical procedures, and must take out professional indemnity insurance at their own cost to cover malpractice.
4. Responsibilities of each party for controlling the manner in which services are provided
5. Responsibilities of each party in the determination and payment of fees by patients, including decisions as to which patients may be bulk billed to Medicare, payments by the Department of Veterans’ Affairs (DVA) and other specified fees and amounts paid or payable
6. How patients’ fees are shared between the medical centre and the practitioner or the entity through which the practitioner’s services are obtained
7. How Medicare and DVA benefits are to be assigned and shared by the medical centre and the practitioner
8. Provision for the practitioner to periodically invoice the medical centre; or for the medical centre to invoice the practitioner or the entity through which the practitioner’s services are provided
9. Hours or days of attendance by the practitioner may be specified.
10. The practitioner’s entitlement to take a leave of absence may be specified, including any requirement to seek approval from the medical centre or to ensure a minimum number of practitioners are available to service patients.
11. The practitioner may be required to provide the medical centre with specified information and documents, and to keep and maintain records required by law.
12. Ownership of, or access to records, including patient information may be specified.
13. There may be restrictions on copying or removing records from the medical centre.
14. The practitioner may be required to promote the interests and welfare of the medical centre.
15. The practitioner may be required to commit to provide a share of duties relating to after-hours calls, home visits and nursing home visits.
16. The medical centre agrees to provide the practitioner with administrative services, clerical and professional staff and facilities, plant and equipment necessary for the practitioner to provide medical services to patients.
17. The practitioner must ensure that they have a Medicare provider number and local medical officer status with DVA.
18. The medical centre does not provide medical services to patients, is not registered as a medical practitioner and does not have a Medicare provider number.

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