Payroll tax game changer for medical, dental and allied health industries


A decision by the Court of Appeal of Victoria is likely to have far-reaching implications for the payroll tax obligations of operators of medical, dental and allied health practices.  All medical and allied health practices should review their payment arrangements now, to ensure that they comply with their payroll tax obligations.

It is a common practice for medical, dental and allied health practices to operate under a "facilities use and trust" model, under which a healthcare provider (eg, a doctor or dentist) engages a practice to provide facilities and administration services to the healthcare provider for a service fee (see diagram below).  These arrangements are intended to operate so that the practice provides services to the healthcare provider, but the healthcare provider does not provide services to the practice – rather, the healthcare provider only provides services to the patients.  The patients are clients of the healthcare provider, and are not patients of the practice.  As part of these arrangements, the practice collects the patient fees from patients on behalf of the healthcare provider and, after deducting a service fee, pays the balance of the patient fees to the healthcare provider.

Typical medical practice arrangement


It has long been thought that the payments by the practice to the healthcare provider under these arrangements are not subject to payroll tax, as the money being paid to the healthcare provider already belongs to the healthcare provider, and is only being held by the practice on trust. A special account called a "billings trust" or other similar name is usually established to make the trust relationship clear.

When the patient fees are paid by the practice to the healthcare provider, it was considered that the fees were not an amount that was paid or payable for the performance of services by the healthcare provider to the practice.  As such, it was understood that the "relevant contract" provisions in payroll tax law (which deem contractors to be employees for payroll tax unless an exclusion applies) did not deem those payments to the healthcare provider to be taxable wages.

This traditional understanding has now been turned on its head following the decision in Commissioner of State Revenue v The Optical Superstore Pty Ltd [2019] VSCA 197.

Like many practices, the optical stores in the Optical Superstore case collected fees paid by patients for eye-testing on behalf of optometrists, retained an 'occupancy fee' and released the balance of the fees to the optometrists.

Earlier decisions concerning the Optical Superstore arrangements concluded that payments made to the optometrists under that arrangement were not amounts "paid for or in relation to the performance of work" for the purposes of the "relevant contract" provisions.  However, the Court of Appeal disagreed and overturned the earlier decisions, finding that the payments to the optometrists were "amounts paid or payable" "for or in relation to the performance of work."

Medical practices, dental practices and allied health practices using this structure may now be liable for payroll tax pursuant to the "relevant contract" provisions, unless one of the exclusions applies.

What do you need to do?

The wider implications of the decision are not yet clear but it is important that prompt attention be given to this decision.

Medical and other health practices

If you are a healthcare practice operator, or are a professional advisor who advises healthcare practice operators, it is important that the arrangements of all practices be reviewed urgently.

You can expect your local Revenue Office to be aware of the decision already and to be considering how it applies to these arrangements more generally.  You should consider proactively engaging with your local Revenue Office to obtain certainty as to your payroll tax position.

Other business arrangements

The decision also has implications for arrangements outside of the medical, dental and allied healthcare industries. It could be relevant to any arrangement where a person collects money on behalf of a service provider.

Contact us

If you'd like to talk to us about any possible implications of this decision for your practice, or your business model generally, please contact our tax team.



Matthew McKee

Gillian Tam

Rose McEvoy