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Payroll Tax Obligations: Spotlight on Medical & Healthcare Businesses & Providers

Recent High Court Decision

The High Court recently supported the judgment delivered in Commissioner of State Revenue v The Optical Superstore Pty Ltd [2019] VSCA 197 under which payroll tax was applied by the Victorian State Revenue Office ("SRO") on payments made by an optical retailer, for services provided by an optometrist, engaged as a contractor.

In accordance with the High Court's decision, medical and healthcare providers in Australia using service entities to engage practitioners as contractors, such as medical practitioners and other healthcare professionals (for example, dentists, optometrists, and physiotherapists), must comply with legislation governing payroll tax.

The SRO considers that fees earned from the public in relation to services provided by healthcare provider as contractors must attract payroll tax. Due to the impact of COVID-19, the SRO had suspended review activities but this recent decision indicates that the SRO currently has its eye on medical and healthcare service entities' payroll tax obligations.

What should healthcare businesses do?

  • Consider their legal agreements with all health professionals engaged in the business.
  • Consider the nature of the daily operational dealings with patients in the business.
  • Consider the business' arrangements for collection and allocation of cash, payment of the business' costs to run, and payment of any remuneration of healthcare professionals and relevant support staff.
  • Consult a legal advisor on each of the above points in relation to the healthcare businesses' payroll tax obligations.

The SRO's current focus is on how practices have structured their arrangements with healthcare professionals and the applicability of payroll tax on any payments made to the practitioners by those practices. Payments made to the host practices by the practitioners, however, are different.

Optical Superstore Case

In the case of Optical Superstore, the SRO raised amended assessments for payroll tax in relation to payments made by Optical Superstore to optometrists who were providing services to the public from the Optical Superstore’s facilities.

The arrangements in the case will be familiar to medical and healthcare providers such that Optical Superstore, for example:

  • owned and managed an optical store (a medical centre or clinic);
  • payments were collected from customers (being, the public) in relation to services provided by the optometrists; and
  • parts of the payments collected by the optical store went to the optometrists (the healthcare practitioners).

The case was heard and ultimately appealed to the High Court, where it was decided that the payments to the optometrists represented payment for work performed under contractor provisions of payroll tax law. Further, the arrangements involved relevant contracts for the performance of work by the optometrists. The work of the optometrists also facilitated the sales of optical products by the Optical Superstore. By this reasoning, the payments to optometrists were deemed to be wages and subject to payroll tax.

What should healthcare businesses consider in the given scenario?

Commercial entities engaging in similar arrangements must carefully review with appropriately experienced and qualified professional advisers, at least the following:

  • the language of all service agreements between medical and health practitioners and the healthcare centres or clinics with which they engage;
  • the management arrangements of the healthcare centres or clinics on a day-to-day basis (for example, management of patient fees, collections, treatment of income and expenses between the relevant parties, service fees and banking arrangements); and
  • application of exemption where the arrangements constitute relevant contracts.

It is critical to remember that, from a payroll tax compliance perspective, it is not just about the form of the relationship in any agreement between the parties but also adherence to that agreement, and the spirit of it, by the parties in practice.

How can I protect my healthcare business?

Factors determining the status and responsibilities inherent in employment relationships include, amongst many others, the arrangements between the parties for paying income tax. To protect your valued business and assets, it is prudent to seek professional advice and to put in place appropriate measures to avoid leaving your organisation open to liability. For current and qualified advice and assistance on these issues, please contact our business and commercial lawyers specialised in medical, health and life sciences today for peace of mind.


Meghan Warren


Meghan Warren

LL.B GAICD B.Bus (FinPlan)
Meghan is one of the few lawyers in Australia admitted in the State (Victoria) and Federal jurisdictions of Australia, and as an Attorney at Law to the New York State Bar in the United States.

Rosy Roberts


Rosy Roberts

Rosy has extensive experience in Litigation & Alternative Dispute Resolution having represented clients in all Victorian State Courts and the High Court of Australia. She is also a VCAT appointed Administrator.

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