General Practices have been held under a spotlight as of late following the decision made by NSW Civil and Administrative Tribunal (NCAT) in the Thomas and Naaz vs CCSR [2021] NSWCATAD 259 case. The decision was handed down on the 3rd of September 2021. The Tribunal stated that the payments made by General Practice to Doctors were considered wages for the purposes of Payroll Tax. This decision was made even though the payments in question represented the GPs own Medicare fees, which were collected by the Medical Centres on their behalf.
Dr Todd Cameron and Dr Sachin Patel of Scale My Clinic along with Stephanie McGrath from Twenty20 Legal and Kelly Chard, Founder of GrowthMD Accountants, conducted a three-part podcast dissecting the case in order to provide insights to help General Practice owners run their Medical Centres efficiently and risk free.
During the three-part podcast Kelly Chard and Stephanie McGrath shared accounting and legal perspectives and provided the following points as an overview of the Thomas and Naaz vs CCSR [2021] NSWCATAD 259 case.
● There were 3 bulk billing practices owned and run by Dr Thomas and Ms. Naaz under written Service Agreements.
● The terms of these agreements stated that the GPs provided rooms, administrative and support services to GPs, which included charging and collection of Medicare fees on behalf of the GPs for a service fee.
● The GPs bulk billed each patient who in turn assigned their Medicare benefits to the GPs.
● The GPs could either submit claims of patient fees to Medicare directly or let the Medical Centre do so on their behalf. In this case, all but for 3 practitioners had requested the Medical Centre to collect fees on their behalf.
● Each Medical Centre had a separate bank account where the fees collected on behalf of the GPs was collected. At the end of each period, the Medical Centre would pay GPs 70% of their patient fees collected via Medicare and retain the remaining 30% + GST as a service fee.
The panel went on to dissect the reasoning behind the NCAT decision on the case. They explained that Payroll tax is imposed on ‘taxable wages’ upon “employers whose taxable wages are paid or payable”. For Payroll Tax Act (NSW) purposes, ‘wages’ is extended to the fee paid or payable by an ’employer’ in relation to work performed under a relevant contract.
They went on to explain that the Tribunal had to consider the following issues to determine whether the payments remitted to the GPs were in fact ‘wages’ under the Payroll Tax Act and therefore subject to payroll tax.
- Were the Agreements between GPs and Medical Centre “relevant contracts” within the Payroll Tax Act.
- If this was so they had to determine whether the Payments were amounts ‘paid or payable’ to the GPs at Medical Centre “for or in relation to the performance of work relating to the agreements”
The panel went on to explain that the Tribunal had to first determine whether the contracts between GPs and Medical Centre were ‘relevant’ contracts. The Tribunal stated that regardless of the medical services directly provided to the patients – which were a necessary part of the Medical Centre owners business – the services were provided not only to the patient but also to the Medical Centre Therefore, the agreements were found to be ‘relevant contracts’ for the purposes of the Payroll Tax Act.
She explained that the following are features that were of relevance in reaching the above conclusion.
● The GPs had agreed to provide services on a 5 day per week basis, which included a weekend rotation and thus had agreed to meet roster commitments to provide notices in advance for planned leave. This had to be approved by the Medical Centre.
● The GPs were obligated to promote the interests of the Medical Centre, which included NOT channelling patients away from the Medical Centre.
● The GPs must abide by the Medical Centre’s operating protocols and complete all necessary documentation.
● The GPs, upon leaving the clinic, would be subject to a restriction preventing them from conducting any medical practice within 5km of the Medical Centre for a period of 2 years post departure.
Medical Centre retained ownership of the patient records
Points to consider for Medical Centre Owners going forward
The Panel explained that going forward, Medical Centre owners should assess and choose a level of risk they are comfortable with and consider the payroll tax obligation and understand how it will affect the business.
Dr Cameron explained “High risk Medical Centre owners and other business owners should consult legal advisors regarding structures, legislation, contracts and agreements with GPs. Medical Centre owners should base their business structure on locality (state, legislation, tax laws etc.) and act accordingly, they should also be prepared to assess and manage risk”.
This case further reiterated that Medical Centre owners should always maintain understanding of changes in structure and make sure the Medical Centre is fit for purpose and running smoothly. Medical Centre owners should always avail themselves to more than one opinion on structural business models and operations. It is important to understand that not all Medical Centres are the same, there are lots of variables and factors to consider when running a Medical Centre There is no cookie-cutter method to running a Medical Centre or any other business for that matter.
Stephanie McGrath advised that “Service agreements are of great importance and differ from business to business depending on the manner in which the medical centre is being operated and the arrangements between each individual Medical Centre and GPs who practice at that Medical Centre. Legal and accounting teams should be engaged to work together with each other and the client. Those advisors should have practical knowledge of how a medical centre operates and expertise in the complex legislation that is each State/Territory’s Payroll Tax Legislation.”
Things to keep in mind from a Legal and Accounting Perspective
● In NSW, relevant contracts are, in summary, contracts in relation to a financial year where a person performs a service for or in relation to work for another person or vice versa.
● Medical Centre owners should be cautious of restraints on GPs, Ownership of Medical records and paying GPs hourly rates.
● A key issue for the medical centre owner in Thomas and Naaz was their reporting of income generated by GPS as their own.
● Misunderstanding or lack of understanding of business structure can lead owners astray. There must be cohesion between advisors, accounting and legal teams to assist the medical clinic operating as intended.
Dr Sachin Patel went on to conclude that “above all else, Risk Management is imperative in running any kind of business and most of the issues faced by Thomas & Naaz in this case have been addressed multiple times in the past, so there is no cause for Medical Centre owners to panic”.
The panel concluded that the result of this case is not a reinforcement of existing principles that Medical Centre owners should adhere to. Getting the best possible advice for commercial practices is paramount and multiple advisors is the best way to go.”
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