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Are you a Medical Practice with massive Payroll Tax Liabilities?

Our clients, and medical practices around Australia, have followed the outcomes of a recent case taken by the Commissioner of State Revenue in NSW with great interest. At stake is the potential for contracted workers to be classed as employees for the purposes of State Payroll Tax liabilities – and tax bills of hundreds of thousands of dollars appearing out of no-where!

Given the almost ubiquitous implications for medical small business, we asked our trusted legal adviser Josh Flett for his take on these recent findings. We hope that this advice will either give medical practice owners comfort, or prompt the correct improvement by speaking to a lwayer….. of course we recommend Josh as he is all over this!

The following words are from Josh Flett, Director at Fletcher Clarendon, a boutique law firm looking after doctors and medical businesses.  

Josh Flett - Fletcher Clarendon



The recent decision of Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259 has raised concerns in the healthcare sector about arrangements between medical centres and medical practitioners.

Since the case of The Optical Superstore Pty Ltd as Trustee for OS Management S Trust & Ors v Commissioner of State Revenue [2020] HCASL 16, the Revenue Offices in some states have taken a hard line approach to how the working arrangements between medical centres and medical practitioners should be categorised for tax purposes. It is suddenly very evident that where the relationship between medical centres and medical practitioners was once deemed excluded from payroll tax, the Revenue Offices in Victoria and NSW have shifted their position and now intend to review many of those relationships.

This was on full display in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue, where the operators of medical centres in NSW were liable for $795,292.95 in payroll tax, as payments made to medical practitioners were found to constitute wages pursuant to the Payroll Tax Act. This decision has put those in the healthcare sector on notice and demonstrates the importance of consistently reviewing agreements to ascertain whether these agreements contain any ambiguities that would subject the operators of medical centres to previously unforeseen payroll tax liabilities. More than ever, it is essential that operators of medical centres understand the importance of this case and the potential consequences for not remaining diligent.

FC Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue


In order to consider whether operators of medical centres need to review their current arrangements, it is important to understand the background of Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue. The background in this case, including the terms of the agreements between the medical centre and doctors, is common in the primary healthcare sector.

In this case, the applicant was a company that operated a business comprising of three medical centres. The GPs operated their medical practices from these medical centres pursuant to a written agreement between each doctor and the medical centre, atwhich they operated their practice. The written agreement between the medical centre and the doctors set out the terms and conditions of the relationship between the parties and also included the terms of payment. In this case, the agreement provided that the medical centre would supply the  rooms to the practitioners, as well as shared administrative and medical support services. In this regard, the agreement was typical of a Service Agreement or an Independent Contractor Agreement, which are commonly used by medical centres and practitioners in the medical industry.

As is also typical, the medical centre handled the charging and collection of Medicare fees received in relation to appointments with a doctor. The patient would be “bulk billed” and would assign the Medicare benefit to the doctors. The claims were made by the medical centre on behalf of the doctor and the funds received were placed in a bank account held by the medical centre.

The medical centre then distributed 70% of the Medicare claims made for a doctor to that doctor on a fortnightly basis. The centre withheld the remaining 30% of the claim as a service fee pursuant to the written agreement.


Legal Issues

In this case, the Court considered whether the 70% of Medicare claim that was distributed by the medical centre to a doctor constituted wages and, accordingly, subject to payroll tax.

The fundamental issues in assessing whether the payments could be deemed as wages were:

  • whether the Agreements between the centre and each doctor could be deemed as “relevant contracts” pursuant to the Payroll Tax Act; and
  • if this was the case, whether the Payments were “amounts paid or payable during a financial year for or in relation to the person of work related to the [Agreement] for the purposes of section 35 of the Pay Roll Tax Act.”


In its Judgment, the Court affirmed the recent decision of The Optical Superstore Pty Ltd as Trustee for OS Management S Trust & Ors v Commissioner of State Revenue and the payments made to the doctors were classified as wages. Subsequently, this meant that the payments fell within the paraments of the Payroll Tax Act 2007 and the medical centre was liable for $795,292.95  in payroll tax.

We are expecting that the decision will be appealed, however at the time of writing we are not aware of whether an application for leave to appeal has been made.

What does this mean for Medical Centres?

The case of Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue, and the earlier Victorian case of The Optical Superstore Pty Ltd as Trustee for OS Management S Trust & Ors v Commissioner of State Revenue, demonstrate that the State Revenue Office are now interested in the relationship and payment arrangements of medical centres and doctors. In particular, they are focussing on how payments should be assessed for payroll tax purposes.

It is therefore critically important to review all service arrangements and independent contractor arrangements on foot in substance and form to ensure that correct processes and procedures are in place that accurately document the underlying relationship.  Specifically, where a service arrangement is concerned and a medical centre is collecting fees on behalf of its doctors, the underlying document should be reviewed to reflect that the medical centre is simply a collection agent.  Additionally, the doctor should not be directed in any way by the medical centre in relation to the conduct of their own independent medical practice.

It is important that operators of medical centres review their agreements immediately and seek advice if they are concerned about any potential payroll tax liabilities that may arise. Assessing arrangements now could potentially save operators of medical centres large payroll tax liabilities in the future.

Thanks Josh, and now from Hoxton MPM.

Reduce your risks

Excellent Practice Management includes having a handle on contracts and payroll reposonsibilities and liabilities. Hoxton Business and Practice Management provides this service in an outsourced model.

Use Hoxton MPM Payroll to keep on top of employee entitlements, pay rates and Award interpretation.

Use PracticeHub by Avant to store documents and keep a schedule of review to ensure that documentation doesn’t get your practice into trouble.

Get a great lawyer like Josh from Fletcher Clarendon to write and review your contracts so you’re not sitting on a $700k liability that you didn’t know about!


Hoxton MPM
Suite 6, 342-344 South Rd,
Hampton East, VIC 3188.
Phone: 03 8060 4277



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