Payroll tax is a State and Territory tax. In Victoria, payroll tax is governed under the Payroll Tax Act 2007 (the "Payroll Tax Act"). It is administered on the payroll of employers, and includes salary payments, superannuation, and payments to eligible contractors under a "relevant contract".
The Minister for Health and Aged Care revealed that the majority of Victorian practices in 2024 offered bulk billing services to patients1. This statistic was an important factor for the Victorian Labor government when introducing a new Bill to provide exemptions to GP (General Practice) medical business for payroll tax liability under the Payroll Tax Act.
The State Taxation Further Amendment Act 2024 (the "Amendment Act") received royal assent in December 2024. It introduces changes to the Payroll Tax Act to include an exemption for payroll tax for eligible practices offering bulk billing. These changes will commence as of 1 July 2025.
We breakdown how the coming changes to the Payroll Tax Act impact on practices below.
The payroll tax exemptions will not apply for any private billed fees or to non-GP practices.
The Current Provisions of the Payroll Tax Act
Currently, practices are liable for payment of payroll tax in circumstances in which they engage with GP's under a "relevant contract", provide them "deemed wages", and there are no applicable exemptions. Defining what is a "relevant contract" for GPs has been the main area of contention for medical practice owners.
The definition of a "relevant contract" under the Payroll Tax Act is broadly defined. In the most basic terms, it refers to a contract in which:
- the GP is engaged by a practice to provide medical services to patients (on behalf of the practice); and
- there is an arrangement for the GP to receive payment from the practice (rather than directly from the patient or Medicare) for, or in relation, to the performance of that work.
This definition is intended to capture GP's engaged by a practice on the basis of being an independent contractor 'on paper', but operating as deemed employees 'on the ground'. For example, contracts which specify the practice is engaging the practitioner, the hours or days that GP's must provide medical services, that GP's must request / take annual leave and/or that GPs are restricted from practising at other practices are all indicative of an employer-employee relationship. This is because the practice has control over the GP's by diminishing their independence as contractors, thus making them more akin to an employee.
In circumstances where the GP contractor is deemed to be an employee of the practice, then any monies which the GP receives directly or indirectly from the practice can be considered "deemed wages". This can arise particularly in situations where the practice receives and deposits patient fees and any Medicare rebates to its own practice account, or to a holding account on behalf of the GP (such as a company account or trust account related to the GP), and then those patient billings are subsequently released directly to the GP following a deduction for the agreed service fee. The central factor is that the flow of patient funds does not go directly from the patient (or Medicare) to the GP.
Under this type of arrangement, the practice is likely to be liable for payroll tax in connection with payments to the GP.
The New Changes for July 2025
The Amendment Act has introduced a new clause 19B to Schedule of 2 of the Payroll Tax Act, together with a new suite of definitions applicable to practices ("GP medical business") and GP's ("relevant person") to support these changes, to apply as of 1 July 2025.
The new section 19B essentially states that GP medical businesses will be exempt from payroll tax to the extent that wages paid to a GP (relevant person) are bulk billed or fully funded items. The definition for "fully funded" refers to Medicare benefits, incentive payments, monies paid in connection with statutory entitlements (such as personal injury compensation) and consumables for the administration of vaccinations.
There is an applicable formula to be used for calculating eligibility for the exemption.
You can review the full details of these changes for the Payroll Tax Act here.
The Impact on Practices in Victoria
The new section 19B in Schedule 2 applies to practices that are liable, or deemed to be liable, for payment of payroll tax.
If your practice is already registered for payroll tax with the Victorian State Revenue Office and it offers bulk billing services to patients of the GPs, then speak to your professional advisors about an entitlement to the new exemption that will come into effect as of 1 July 2025.
For owners of practices whose businesses are not registered for payroll tax, if you haven't already, you should seek appropriate professional advice about the nature of the contracts between the practice and GP's in relation to liability for payroll tax.
Generally, practices will not be liable for payment of payroll tax in circumstances where the:
- total aggregate of annual wages for employees, and deemed employees (including contractor GP's), is not higher than the pay-roll tax threshold applicable during a financial year (e.g. the current threshold is $900,000 per year but will increase to $1,000,000 on 1 July 2025); and/or
- GP's who provide medical services at the practice are not engaged under a relevant contract – but rather under a properly constructed facilities services agreement that is not a "relevant contract" for the purposes of the Payroll Tax Act.
Please click here to learn more about our recommendations for the content and nature of facilities and service agreements between a medical practice and independent health practitioners. As noted earlier above, the flow of patient funds is one of the most critical factors in assessing whether there are any "deemed wages" for contractor GPs that give rise to the liability for payroll tax.
Footnote
1 https://www.health.gov.au/ministers/the-hon-mark-butler-mp/media/first-year-of-medicare-data-shows-increase-to-bulk-billing
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
