We have received some queries about the recent decision in Commissioner of State Revenue v The Optical Superstore Pty Ltd.
The Victorian Court of Appeal held that payroll tax was payable on payments made to optometrists who operated out of premises at The Optical Superstore.
The decision has attracted some attention in the medical community because:
- the arrangement was described as a lease;
- there was no employment relationship between the optometrists and The Optical Superstore;
- the patients were the patients of the optometrists;
- the optometrists had directed that Medicare pay amounts for bulk billed services into an account held on trust for the optometrists; and
- payments to the optometrists were made out of this account.
However, it is important to appreciate that the amount paid to the optometrists was based on the number of hours they were available to see patients. The rate assumed 7.6 hours and 21 appointment slots per day, with no adjustments for cancellations or no shows. In other words:
- the optometrists received the same hourly rate regardless of how many patients they saw or how those patients were billed; while
- the net “rent” payable to the “landlord” was variable and could be negative.
The lower court accepted that, even though the optometrists were not employees, the amounts received were for the performance of work. This meant that the key issue was whether there was a ‘payment’. The lower court held the amounts received could not be ‘payments’ because the optometrists were the beneficiaries of the trust and you cannot pay money to yourself. The Court of Appeal said that the only legislative test was whether there was a ‘payment’ and the fact that the payment was made from a trust for the optometrists was irrelevant.
Consistently with this decision, in Homefront Nursing Pty Ltd v Chief Commissioner of State Revenue the NSW Civil and Administrative Tribunal held that Medicare payments made to contracted GPs were not subject to payroll tax even though the practice collected the payments and remitted 71.5 per cent to the practitioners. By contrast, payroll tax could be payable on top up payments made to GPs. These amounts were payable in the first 13 weeks of engagement and had the effect of guaranteeing a total income of at least $3,600 per week regardless of patient billings.
Both decisions are a reminder that the Commissioner will look behind the documentation to determine whether practitioners engaged under servicing arrangements are:
- genuinely providing medical services to their own patients and acquiring services from the practice; or are
- actually working in the business of the medical practice, that is, supplying services to the medical practice and/or its patients
This is likely to involve consideration of how the amounts paid to each party (i.e., the doctor and the practice) are calculated and who is taking the risk.