Payroll Tax and me – what’s the latest and how am I affected

Payroll Tax and me – what’s the latest and how am I affected

The Covid-19 pandemic has created a challenging environment for businesses operating in the health sector over the past few years. Increased costs, staffing shortages and increases in provider demand has resulted in businesses often operating on thin margins and retaining little to no profit at the end of the year. On top of this there have been developments  in how service entities are affected by Payroll Tax, which is expected to have a long-term – and backdated – impact on providers, as well as the healthcare sector overall.


What is payroll tax?

Under the provisions of the Payroll Tax Act 2007 (NSW) payments made under relevant contracts may be considered wages for the purposes of payroll tax.

Medical practices, Dental clinics, Allied-Health and other services like Gyms and Massage clinics typically operate a ‘service entity’ model whereby the business collects the income on behalf of the provider and then distributes it back to the individual after deducting a service fee.

The broader application of payroll tax laws would see the distribution of these fees being considered to be payments for the performance of work by the individual provider on behalf of the business rather than individual providers providing services directly to clients, being paid by the client and acquiring services (including the collection of fees) to run their business from the service entity.

Revenue NSW has confirmed that it will broaden its application of existing payroll tax laws to encompass medical practices and other businesses operating ‘service entities’.

These decisions in NSW and VIC, along with recent confirmation from the Commissioner of State Revenue in Queensland that medical centres in Queensland are likely to face significant payroll tax challenges, are a timely warning for businesses operating in the health and fitness sector to review the way payments are structured to anyone who operates from their businesses.

What does this mean?

What can be taken from the highly publicised Thomas & Naaz case is the concept of a service entity having supplied to it the services of a contractor, for or in relation to the performance of work by the contractor, thereby falling within the definition of a ‘relevant contract’. This is despite the contractor simultaneously providing services to others (e.g. patients), and payments to the contractor being sourced from funds that have not necessarily originated from the service entity.

Put simply, payments from a healthcare practice/business to their contracted providers may trigger payroll tax obligations with respect to those payments. The risk that those payments are subject to payroll will come down to the terms of the contracting arrangements, as well as what happens on a day-to-day basis in the business.

Most businesses that operate in the medical, dental, allied health and health and fitness sectors – where appointment fees (including Medicare rebates) are collected by the business into its operating account and remitted net of the ‘administration fee’ are at significant risk of being subject to payroll tax.

Arrangements that may have been considered low risk a few years ago are now likely to carry a far higher risk of challenge by the various revenue authorities around the country because of the recent cases in NSW and Victoria.


What now?

The terms of the contracting arrangements will need to be reviewed and many, if not all, will require some changes. Practically, business owners will need to relinquish some of the control that they have in their arrangements with the providers, including:

  • the collection of fees;

  • rostering arrangements;

  • how the administration fees are set;

  • the use of consulting fees to pay the clinic’s operating expenses;

  • restraints of trade; 

  • ensuring contracted/tenanted providers are ‘making a public offer’ for their services, and

  • ownership of patient records.

It is critical that operators of medical/health services businesses review their contractual arrangements with their doctors and other healthcare providers, to determine whether any action is required in order to ensure compliance with their payroll tax obligations.

What are the rules?

Technically, if you are operating your services under an ABN, and aren’t being seen by the ATO to be ‘making a public offer’, this ruling can be used against you to deny or limit important tax deductions. It can be speculated that this is being classified as a personal service income.

“Who must make the ‘offer’

106. The offer must be made by the sole trader or PSE.

107. Where an offer is made by an individual and it is clear that the offer is made by the individual as a representative of the PSE, then the offer is considered to have been made by the PSE and this element of the test will be met.[81]

108. Where an offer is made to a sole trader or PSE by the service acquirer, this element is not satisfied because it is the potential client (service acquirer) making the offer rather than the sole trader or PSE.”


How do I ‘make a public offer’?


There are two main ways to show the ATO that you are making a genuine attempt to make an offer of your individual services to the public. You can do this either by:

  • Creating your own service provider website, or

  • Creating a profile with Medical Mecca.

At a glance

Website drill down

A website is a great tool for any medical or health contractor, as it allows you to advertise your services and keep your patients and clients up to date with your latest news and developments. Websites are a fabulous way to improve your online visibility, increase your SEO and to market yourself to your target audience. You can incorporate online bookings, online stores and email marketing campaigns into your website to boost website traffic and to generate an income. 

The downsides to websites is that they can be costly to set up and time consuming to maintain and the more features you have, the more expensive and time consuming they become. You can set up a wix webpage for as little as $22 a month however you do have to keep your website updated regularly if you want your website to rank against your competitors.  If you are time poor and want to hand the website development and maintenance over to a professional, the set up for a standard website will be in excess of $1,000 with monthly maintenance costing at a minimum $50 a month. A website fitted with an active blog, online store and email marketing integrations will cost $6,000 at a minimum and can cost over $50,000 depending on the level of sophistication. 

If you are considering creating a website, ensure that your website includes your professional registration number and ABN.


Medical Mecca drill down

Medical Mecca is a health provider directory that has been developed to provide individual providers with a no fuss way to improve their online presence and market themselves and their skill set to the public. We are aware that medical and health providers don’t have degrees in marketing so we wanted to create a directory where information hungry consumers could search, research and book into a health provider that suits their needs all from one place that is easy for the provider to create and maintain. Your profile is all about you and marketing your skill set to the public, it is like a mini-website within a directory with constant traffic being driven to your door. 

Your Medical Mecca profile has a space to list your ABN and your registration number to tick the boxes required by the ATO and ensure that you are advertising your services as an individual trader. 

Your Medical Mecca profile has the following features – 

CPD tracking – An inbuilt CPD tracking tool which enables to to set goals, log activities, upload certificates, set reminders and, in the case of an audit, download all the information required into a simple PDF document that can be sent to your regulatory body.

Geo-Marketing – Really want to ensure that you’re making a deliberate offer to the public? Medical Mecca has a built-in Geo-Marketing feature that will email your profile to every registered provider and consumer within a pre-set radius to ensure that everyone in your local area knows who you are and how they can refer or book an appointment for you. Every time you update your listed business address this marketing feature will be activated to keep your local network updated on who is working where to ensure that your referrals reach the right place the first time.

Secure Direct Messaging – Medical Mecca offers secure messaging between registered providers. Our Secure Messaging service has been developed by Australian Digital Health Agency standards and is pen tested every 3 months to ensure that your data is kept safe. 

Unlimited online bookings – You can integrate your online booking URL directly into your Medical Mecca profile to help you secure those bookings quickly and easily.

Australian Owned and Run Company – Medical Mecca is an Australian owned company with the server located in Melbourne so you can be sure your confidential information does not leave our shores.

Affordable – Medical Mecca is a subscription based platform that provides you with access to all of these features for only $99p/a.

You can claim a free 12 month trial for Medical Mecca by visiting


In conclusion 

Now is the time to review your service entity arrangements.

Each business needs to consider its own administrative service arrangements and consider the payroll tax impact arising from the current approach of the revenue authorities. Although the wording of any service agreement between the business and the provider will be important, so too will be the day-to-day operations of the business.

Exemptions may be available where the arrangements do in fact constitute relevant contracts – however, these exemptions can be quite narrow.

 Please seek specialist accounting and legal advice tailored to your circumstances to ensure you achieve a result that is suitable to the needs of you and your business. 

Want to start the process now? Head to Medical Mecca and create a profile today!