Doctors fear being hit with multimillion dollar payroll tax bills as stoush heats up

Clinics in Sydney and Melbourne are estimating they will be liable for multimillion dollar retrospective tax liabilities, following a recent court precedent.

Clinics in some of the biggest population growth corridors in Sydney and Melbourne are estimating they would be liable for massive retrospective tax liabilities.

Doctors are pushing national cabinet to scrap a tax that represents “one of the biggest threats to general practice in Australia” as individual surgeries fear being hit with multimillion dollar bills for backdated payroll tax.

Clinics in some of the biggest population growth corridors in Sydney and Melbourne are estimating they would be liable for massive retrospective tax liabilities if state payroll taxes are levied on them following a recent court precedent.

GPs have previously not been subject to state-based payroll tax, because most work under independent workplace agreements and have not been considered employees. But a tribunal earlier this year overturned that characterisation, prompting states to vow they would levy the tax on doctors. General practices Australia-wide have always paid payroll tax on their employees, including receptionists, GPs in training, managers, and nurses.

Since the court ruling states and territories have taken different approaches to applying payroll tax to independent practitioners which has led to confusion and distress for GPs across the country.

Surgeries fear being hit with multimillion dollar bills for backdated payroll tax.

In Victoria hundreds of practices have been hit with huge retrospective tax bills that they cannot afford to pay, according to the Royal Australian College of General Practitioners.

One of those practices is Sia Medical, a family-run practice with eight clinics in Melbourne’s growth corridors in the east and west, employing 75 GPs and with over 200,000 patients on its books.

The practice was contacted by the state revenue office in the middle of this year after Victoria and New South Wales released a new revenue ruling that GPs working under independent contracts would be hit with payroll tax.

Managing director Grace Sia said they have been ordered to supply up to 10 years of documentation for doctor contractor payments, and the practice estimates a tax bill of up to $5 million if they have to pay backdated payroll tax on their GPs. This would make the practice group insolvent.

“We’ve now had to look at other ways to potentially fund the payroll tax. Banks and private equity which we’ve never had to do before,” she told the Australian.

“We’ve been lucky because my dad [has] been good with the way he’s done things. Because we are a group, we are able to have those conversations a lot easier. But I think it’s more impactful for a small, solo GP clinic [as] they will be more greatly affected. We’ll still be affected as well, mind you but for other people they will have to shut down.

“[The payroll tax] definitely blindsided us because for years, people have been operating the way they’ve been operating based on the fact that doctors are contractors and you can’t tell them what to do.”

NSW Premier Chris Minns. Picture: NCA NewsWire/Flavio Brancaleone

In NSW First Light Healthcare, which has two clinics in Byron Bay and Ballina, received in August a $450,000 backdated payroll tax bill with 21 days to pay which would have forced them to close.

The NSW Premier announced a pause on payroll tax audits of general practices after lobbying from doctors’ groups. First Light Healthcare is still operating, but the Practice Owner Mathew Simpson is concerned about what will happen at the end of NSW’s auditing pause. Their practices were damaged in last year’s floods, and they also played a big role in helping the community during the disaster and in the recovery.

“We find for the pursuit of payroll tax by the states and territories and the lack of alignment between the states and the territories and the Commonwealth abhorrent,” he told the Australian.

“The Inter-Generational Report released earlier this year highlights what we already know — we’ve got major issues, significant issues within the health care sector landscape that we need to be focusing on. Chronic health, mental health, an ageing population, things that are already challenging in an already strained system.

“The states pursuing practices for payroll tax will ultimately mean that cost will then be further levied upon consumers. It has to be passed onto the consumers, it’s the only way you can operate reliably in a low margin business, where particularly the cost of operating have gone up substantially over the last 18 months post-Covid.”

The payroll tax bills come as many general practices across Australia are struggling to remain open, with Medicare rebates at rock-bottom levels and patients struggling to pay gap fees.

Mathew Simpson, Managing Director at First Light Healthcare.

“There’s an urgent need for consistency in how payroll tax is applied to independent practitioners across Australia,” said RACGP president Nicole Higgins. “Practices operate on thin margins, our 2023 Health of the Nation report found four-in-five practice owners are concerned about the viability of their practice. Australia lost 184 general practices last year; we cannot afford to lose more.

“Only Queensland has provided a new payroll tax ruling, clarifying that patients’ fees paid directly to a GP for their services will not be subject to payroll tax. We want other governments to follow this approach.

“But the situation is dire in other places. For example, Victoria is refusing to admit anything has changed, despite the many practice owners crying out for help because they’ve being hit with huge retrospective tax bills they can’t afford to pay.

RACGP president Dr Nicole Higgins.

“And just recently, in Australia’s capital, practices have received threatening letters from the ACT Revenue Office informing them they risk being audited unless they register for payroll tax. The ACT Government has shown it has no clue how general practice or bulk billing works by demanding practices bulk bill an impossibly high amount in order to receive a temporary payroll tax amnesty – it’s a joke at best and coercive at worst, and it will send practices broke.

“We need to sort this out urgently. The RACGP wants to work with the federal, state, and territory governments to establish a consistent approach to this tax that ensures the sustainability of general practice care Australia-wide.”

The payroll tax bills come despite a 2010 Harmonisation Joint Protocol for payroll tax – a key mechanism to ensure a uniform approach to the application of taxation across Australia. The lack of harmonisation has resulted in practices in several states being hit with retrospective tax bills, including one for $800,000 in Victoria.

National cabinet meets on Wednesday.