What is a Tenant Doctor?
In the complex world of medical practice arrangements in Australia, the term Tenant Doctor (trademarked) has emerged as a critical concept, particularly in the context of payroll tax compliance, legal obligations, and operational independence. But what exactly is a Tenant Doctor, and why does it matter so much?
Defining the Tenant Doctor
A Tenant Doctor refers to a medical practitioner—such as a general practitioner (GP)—who operates their own independent practice within a shared facility under an arrangement akin to a tenancy.
Instead of being an employee or a contractor of the medical centre, the Tenant Doctor rents space and the associated administrative support services from a service entity. This model is often structured through a service agreement where the doctor pays a service fee based on their gross billings, typically on a fee-split basis (e.g., 60/40 or 65/35). The service entity provides non-clinical support such as receptionists, IT infrastructure, and premises management, while the doctor retains full control over their clinical practice. This arrangement aligns with legal principles established in cases like Hollis v Vabu Pty Ltd (2001) 207 CLR 21, which emphasised the importance of control and independence in distinguishing independent contractors from employees.
Service Entity Ruling - 1978 - Principal originating from,
The ATO’s Service Entity Ruling, based upon the 1978 Phillips case, is how traditional group “Administrative Business” practices were established.
Notably, it seems that each payroll tax office ruling refers to this arrangement but not the Phillips case.
This may explain why many legal and accounting advisers miss the originating authority that sets these guidelines.
Nevertheless, due to the Principal being published
Key Features of Tenant Doctor Arrangements
- Operational Independence: Tenant Doctors maintain their own branding, websites, and patient records. They are not employees or contractors of the service entity but operate as independent practitioners.
This distinction is critical to avoid misclassification risks highlighted in cases like Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2022] NSWCATAD 8, where excessive control over practitioners led to payroll tax liabilities.
- Service Entity Relationship: The service entity acts as a landlord or administrative facilitator, not as an employer. This separation was reinforced in Commissioner of State Revenue v Optical Superstore Pty Ltd [2019] VSCA 197, where financial arrangements resembling employment triggered payroll tax obligations.
- Taxation Implications: Properly structured Tenant Doctor arrangements mitigate payroll tax risks by clarifying that doctors are not part of the employing entity. The Federal Court’s decision in Moffet v Dental Corporation Pty Ltd [2019] FCA 344 underscored the need for clear contracts to avoid disputes over employment status.
- Privacy Compliance: Tenant Doctors are classified as APP Entities under the Australian Privacy Act, meaning they directly manage patient data and privacy obligations.
Why Does This Matter for Payroll Tax?
The distinction between a Tenant Doctor and other engagement models is crucial for payroll tax compliance.
Recent audits and cases like Thomas and Naaz demonstrate that misclassification can lead to retrospective tax assessments spanning years, with liabilities potentially exceeding $250,000 (excluding penalties). Contracts must explicitly demonstrate the service entity’s lack of control over clinical work to withstand scrutiny.
Legal and Practical Considerations
To establish a compliant Tenant Doctor arrangement:
1. Draft Clear Agreements: Avoid terms like “contractor” (as cautioned in Hollis v Vabu) and explicitly define the tenant-like relationship.
2. Separate Branding: Maintain independent websites and branding, as endorsed in Moffet v Dental Corporation.
3. Fee Structures: Base service fees on gross billings, not fixed wages, to align with Optical Superstore principles.
4. Operational Practices: Ensure administrative staff act as neutral facilitators, avoiding any perception of employment.
Risks of Non-Compliance
Failure to structure agreements correctly risks:
- Payroll tax audits and penalties (Thomas and Naaz).
- Privacy breaches due to unclear data responsibilities.
- Legal disputes over employment status (Moffet).
- Medico-Legal Mitigation - the Tenant Doctor model not only mitigates payroll tax risks but also clarifies medico-legal responsibilities, particularly in shielding service entities from liability for practitioners’ clinical negligence. Recent case law underscores the importance of structuring arrangements to reflect genuine independence, ensuring practitioners—not service entities—remain legally accountable for their clinical decisions.
Conclusion
The Tenant Doctor model offers autonomy for practitioners and payroll tax protection for service entities—if implemented correctly.
If you’re unsure about compliance, seek expert advice. However, if you lack the time or expertise to vet law firms specialising in payroll tax, contact Hamilton Bailey for streamlined support.
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