Payroll Tax (Succession Planning)
The “21 Requirements” Necessary for Medical Sector Accountants to Consider when assessing whether their Medical Sector Client qualifies as an Independent Business
In full disclosure, the following page is specifically targeted towards the Australian qualified Accountants who are considered as Medical Sector Accountant specialists.
In our firm’s attempt to expand, we have been actively searching for Accountants that would be able to review clients’ financial documentation according to the criterion outlined by a number of various Court & Tribunal decisions and Government Agency legislation & regulations; and thus allow an Accountant to formally certify a declaration stating that our mutual client is in fact a genuine independent business.
This certification requirement, according to our interpretation of relevant case law and rulings, suggest that certifications from both accountant and solicitor will become an annual expectation/requirement from the relevant Tax Authorities, as to allow the authorities to efficiently review and approve an entity as “not eligible” for Payroll Tax (or similar).
We note that such expectations are predominately due to the work load experienced by the relevant Tax Authorities, and the justification that a particular client’s accountant/tax advisor (and solicitor) should be sufficiently well versed in their client’s dealings to provide a declaration that their client is in fact a genuine independent business.
Upon the Client’s Accountant providing our office a PT21 Compliance Certificate, we will then finalise our mutual Client’s annual legal-audit review, and sign-off on the Service Agreement prepared by our office confirming that the Client is operating an independent business from a particular premises.
This certification accompanied by the Service Agreement would then be forwarded to the relevant Tax Authority in support of our Client’s claim that they are not eligible for a particular tax(s).
21 Requirement Checklist
Published: 10 September 2021
| Case | Matter | Comments |
|---|---|---|
| SOUTH AUSTRALIA PUBLIC RULING PTASA003.1 RELEVANT CONTRACTS—MEDICAL CENTRES Published: 30 June 2023 | Relevant contracts: Medical centres. Interesting to note that the Ruling advises that "Revenue Rulings do not have the force of law." | Ruling provided further particulars and detailed examples of the relevant contract provisions to an entity that conducts a medical centre business. Illustrated examples of circumstances where the practitioner(s) would be considered employees. |
| QUEENSLAND PUBLIC RULING PTAQ000.6.1 RELEVANT CONTRACTS—MEDICAL CENTRES Published: 22 December 2022 | Relevant contracts: Medical centres | The ruling explained the application of the relevant contract provisions to an entity that conducts a medical centre business. Provided examples of deemed employee practitioners. |
| INDEPENDENT CONTRACTOR RULING INCOME TAX: PAY AS YOU GO WITHHOLDING – WHO IS AN EMPLOYEE? Published: 15 December 2022 CLASSIFYING WORKERS AS EMPLOYEES OR INDEPENDENT CONTRACTORS – ATO COMPLIANCE APPROACH Published: 15 Dec 2022 |
ATO Ruling classifying workers as employees or independent contractors | The ruling provided guidelines for classifying workers as employees or independent contractors. It emphasised the importance of contracts, substance, risk, and goodwill in determining the employment status. |
| TR 2022/3 INCOME TAX: PERSONAL SERVICES INCOME AND PERSONAL SERVICES BUSINESSES – GENUINE BUSINESS TEST PUBLIC OFFERING EXEMPTION Published: 23 November 2022 | Public offering: “Who must make the ‘offer’ | The ruling clarified that the offer must be made by the sole trader or personal service entity to the public by actively promoting their business. |
| SOURAKI AZAD v HAMMOND PARK FAMILY PRACTICE PTY LTD T/A JUPITER HEALTH WARNBRO – [2022] FWCFB 66 D 4 May 2022 | Contracts: Relationship between Overseas Trained Practitioner and owner of medical clinic. Banking: Fees banked into single account. |
The case examined the relationship between Overseas Trained General Practitioner and owner of medical clinic. Separate Banking. Deemed Dr Azad as an independent contractor. |
| ZG OPERATIONS AUSTRALIA PTY LTD & ANOR APPELLANTS [2022] 9 February 2022 | Contracts: Whether the actual relationship between the parties is consistent with the agreement. | Examined the relationship between the parties. Focused upon the “totality” of the transaction, where the agreement is not clear. |
| CFMMEU v PERSONNEL CONTRACTING [2022] 9 February 2022 | Contracts: Relationship between the parties Evidence whether relationship is consistent with the agreement. |
High Court emphasised the importance of clearly recorded agreements. Ruled that a party had clear rights and obligations when said rights were explicitly outlined in an agreement, regarding “totality” decision. |
| THOMAS AND NAAZ PTY LTD v CHIEF COMMISSIONER OF STATE REVENUE [2022] NSWCATAP 220 6 July 2022 & [2021] NSWCATAD 259 | Contract: Relationship between providers and the clinic owners. Were there rosters, appointments, service fees, trade restraints and/or demands to work after-hours. | The case examined the relationship between providers and clinic owners. It deemed the providers as employees due to the control exerted by the owners. |
| ALLOCATION OF PROFESSIONAL FIRM PROFITS – ATO COMPLIANCE APPROACH Published: 2021 | Income splitting | The Federal Tax Office announced in July 2022 that it is in the process of reviewing practice trusts and companies. |
| CORPORATION PTY LTD v MOFFET [2020] FCAFC 118 | Dentist under payment of wages claim – superannuation. | The case examined the relationship between a dentist and clinic owners. It deemed the dentist as an employee for superannuation purposes but remains classified as an independent contractor. |
| ZHANG AND COMMISSIONER OF TAXATION (TAXATION) [2020] AATA 3008 10 July 2020 (Banksia case) | PAYG, income tax & referred to GST relating to the sex industry. | Examined the relationship between sex workers and brothel owners. It deemed the sex workers as employees due to the control exerted by the owners. All fees banked in the owner’s bank account. Owner’s website cause for ruling. |
| HOMEFRONT NURSING PTY LTD v CHIEF COMMISSIONER OF STATE REVENUE [2019] NSWCATAD 1452019 | Contracts: Relationship between doctors and owner of medical clinic | Examined relationship between doctors and clinic owner. Deemed doctors as employees due to the control exerted by the owner, with a special mention on banking & “top-up” (i.e. salary) payments. |
| COMMISSIONER OF STATE REVENUE V THE OPTICAL SUPERSTORE PTY LTD 2018 VSC 524 (Super Optical case) | Optometrists contracts | Examined relationship between providers and clinic owners. Deemed providers as employees due to the control exerted by the owners, providers receiving “top-up” fees, rosters, single banking. |
| HKYB v COMMISSIONER OF TAXATION (TAXATION) [2018] AATA 4770 (Brothel case) | Sex worker PAYG and income tax | The case examined the relationship between sex workers and brother owners. Highlighted the importance of contracts, banking, and advertising in determining the employment status of sex workers. |
| MARK MITCHELL v URAIDLA PHYSIO [2017] FWC 2476 | Independent contractor physio unfair dismissal case payroll tax | The case examined the relationship between physiotherapists and owner of clinic. It deemed the physiotherapist as an employee due to the control exerted by the employer. |
| WINDAY INTERNATIONAL PTY LTD v CHIEF COMMISSIONER OF STATE REVENUE [2016] NSWCATAD 270 (Winday case) | Doctors payroll tax | The case examined the relationship between doctors and clinic owners. Highlighted the importance of contracts, banking, and advertising in determining the employment status of doctors. Verbal agreements relating to paying all funds into clinic’s account, and website verbiage suggested the relationship was an employment agreement. |
| ASSESSING THE RISK: ALLOCATION OF PROFITS WITHIN PROFESSIONAL FIRMS - 2014 | Income splitting and payroll tax | The Federal Tax Office announced in September 2014 its review of common usages relating to practice trusts and companies. |
| YALOS ENGINEERING PTY LTD v COMMISSIONER OF TAXATION [2010] AATA 408 | Independent Contractor: Who must make the offer | Clarified the sole trader or personal service entity must make the offer or invitation, and not the service provider. The individual sole trader must advertise to the public and not the service entity/practice. |
| HOLLIS v VABU PTY LTD [2001] ATHCA 44 | Negligence: Courier company liability for independent contractors negligence | Held a courier company liable for the negligence of its independent contractors. It deemed the company as an employer due to its control over the contractors and marketing material. |
| SERVICE v FEDERAL COMMISSIONER OF TAXATION [2000] FCA 188 | Professional Services -alienation of income Focused on the commercials of the arrangement. |
Allowed a taxpayer to shift income to a private company at a lower tax rate. It emphasised the importance of the relationship between the professional and owners of related entity. |
| HEALTH SERVICES FOR MEN PTY LTD & ORS v D’SOUZA & ORS [2000] NSW CA 56 | Ownership of medical records between doctors and clinic owners. Focused upon the parties’ intention. | Dealt with the ownership of medical records between doctors and clinic owners. Emphasised the importance of contracts and the intention of parties in determining the medical records ownership. Parties had no written agreement. Control over the doctor’s activities were queried. |
| COMMISSIONER OF TAXATION v PHILLIPS [1978] 8 ATR 783 | Income tax: deductibility of service fees paid to associated service entities Intention of parties. Setting commercial services fees. |
Examined the deductibility of service fees paid to associated service entities: now commonly referred to as the “Phillips arrangements”. It highlighted the importance of the intention of parties, the setting of commercial service fees, and the relationship between a professional and the owners of a professional service entity. |
Please note that there are two further requirements, in addition to the above. However, for the purposes of brevity these further points can be discussed at a later time.
In the event that an Accountant believes they would be able to satisfy the above requirements in their annual review and certify our joint client, please reach out to our office so that we may discuss on either the below Contact Form, or to: services@hamiltonbailey.com
Last Updated: 1 July 2023 (incorporating precedents and rulings 2022-2023)
Contact form - Service agreements
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