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Payroll tax gone viral! Considerations for medical practices following the decision in Thomas and Naaz
Technical article

Payroll tax gone viral! Considerations for medical practices following the decision in Thomas and Naaz

Medical and allied health practices across Australia should consider their payroll tax obligations in relation to payments to medical and healthcare practitioners.

Revenue Authorities are likely to enhance their payroll tax compliance activities following the decision by the NSW Civil and Administrative Tribunal Appeals Panel decision to dismiss the taxpayer’s appeal against the original Tribunal decision in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue.

What was the issue in the case?

The Thomas and Naaz case1 concerned the operator of a general medical practice that collected patient fees from Medicare on behalf of the doctors and distributed those amounts to the doctors after deducting a fee. The issue in this case was whether the medical practice was liable to pay payroll tax on the payments to the doctors.

The NSW Tribunal decided that the payments to the doctors were subject to payroll tax. For more information on the Tribunal decision, please see our earlier article.

The appeal decision

The Appeals Panel dismissed2 the taxpayers’ appeal against the original Tribunal’s decision. The taxpayer had challenged the Tribunal’s findings that there was a “relevant contract” between the doctors and the medical practice within the meaning of the Payroll Tax Act and the amounts paid to the doctors were paid “for or in relation to the performance of work” relating to a relevant contract.

The Appeals Panel rejected the taxpayer’s appeal on the basis that they were challenging questions of fact rather than questions of law. The Appeals Panel concluded that the taxpayer had not demonstrated any errors in law in the original decision.

Additionally, the taxpayer tried to raise new arguments in relation to the application of a particular payroll tax contractor exemption. However, as these arguments had not been raised before the Tribunal, the Appeals Panel refused to grant the taxpayer leave to raise them on appeal.

The decision of the Appeals Panel is consistent with the decision of the Victorian Court of Appeal in Commissioner of State Revenue v The Optical Superstore Pty Ltd3, where payments to certain optometrists by the Optical Superstore were determined to be subject to payroll tax.

Implications of this decision

This decision is significant for operators of medical practices as they are likely to face an increased risk that payroll tax will apply to their arrangements with doctors.

Additionally, the principles from this decision could also apply to practices which contract with other healthcare and allied health professionals as well as to similar arrangements in other industries.

As payroll tax rules are largely harmonised across most Australian jurisdictions, this decision will likely encourage the Revenue Authorities across Australia to ramp up investigations into medical centre practices and similar administrative service structures.

In our dealings with the Revenue Authorities on similar matters, we understand that the Revenue Authorities consider that the Thomas and Naaz and Optical Superstore decisions confirm their views on how the law always applied rather than as a change in the interpretation of the law. Hence, it is unlikely that the Revenue Authorities would take a ‘prospective’ compliance approach to these issues.

Accordingly, some businesses may be faced with retrospective exposure to payroll tax including penalties and interest for up to five (5) years as the review period for payroll tax audits is the current financial year and four (4) previous years.


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

In particular, the review should consider the following, among other things:

  • types of services provided by each party under the agreement;
  • each party’s commitments and obligations under the agreement;
  • arrangements in relation to collection of patients’ fees and payment flow between the parties;
  • rostering arrangements and leave approval procedures;
  • any restraints of trade where doctors seek to operate elsewhere; and
  • arrangements in relation to storage of patient’s medical records.

Please contact the authors or your usual Pitcher Partners representative if you have any queries or require any further information.

1 Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259
2 Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2022] NSWCATAP 220
3 Commissioner of State Revenue v The Optical Superstore Pty Ltd [2019] VSCA 197
This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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