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Payroll Tax: Thomas & Naaz Appeal Dismissed – Where to Now?

The recent appeal decision in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2022] NSWCATAP 220 (Thomas and Naaz) brings medical practices and their service arrangements back under the microscope.

The appeal was dismissed, with the Appeal Panel of the New South Wales Civil and Administrative Tribunal Appeal (NCAT) upholding the earlier decision in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259. As a result, there is a renewed focus on whether payments made to medical practitioners practising under service agreements are subject to payroll tax.

Recap of the facts and the original decision

The taxpayer operated three medical centres and the doctors carried on their own businesses from these medical centres pursuant to a service agreement.

Under the service agreement between the doctor and the taxpayer, the taxpayer provided consultation rooms, administrative and medical support services.

The doctors pay a 30% service fee for the services provided under the arrangement.

Under the arrangement, the doctors bulk bill the patients and the patients assign their Medicare benefits to the doctors. The taxpayer collects the Medicare benefits from the patients on behalf of the doctors and remit 70% to the doctors for their billings, retaining the remaining 30% as a service fee.

The key issue considered by the Tribunal was whether the payments made by the medical practice to the doctors fell within the relevant contract provisions of the Payroll Tax Act.

The Tribunal found that:

  • the doctors were providing services to both the medical centre and the patients; and
  • payments made to the doctors from the medical centre were, therefore ‘for or in relation to the performance of work’ under the agreement.

The Tribunal highlighted a number of key features of the agreements that supported this view, including:

  • reference to hours of work, shifts and rosters;
  • requirement to promote the business of the medical practice;
  • requirement to provide notice prior to taking leave;
  • requirement not to channel patients away from the practice;
  • the inclusion of restrictive covenants; and
  • ownership of patient records.

The Tribunal dismissed the taxpayer’s argument that the Commissioner should exercise his discretion to apply the payroll tax exemption in section 32(2)(b)(iv) of the Payroll Tax Act on the basis that the services provided by the doctors were performed by doctors who ordinarily provide services of that kind to the public.

Appeal decision

The Appellant submitted seven grounds for appeal, which were all dismissed by the Appeal Panel:

  1. NCAT erred in construing and applying section 35 of the PTA to payments made by the Appellant to the doctors of amounts equal to 70% of the Medicare benefits collected on their behalf.
  2. NCAT erred in law in finding that the doctors provided their medical services as GP’s not only to their patients, but to the Appellant.
  3. NCAT erred in law in finding that the agreement between the Appellant and the doctor was a ‘relevant contract’ under the PTA.
  4. NCAT erred in law in finding that the agreements were not exempt from being relevant contracts pursuant to section 32(2)(b)(iv) of the PTA.
  5. NCAT erred in law in finding that the payments were ‘for or in relation to the performance of work relating to a relevant contract’.
  6. NCAT erred in law by finding that the payments were wages under the PTA.
  7. NCAT erred in law in not following and applying the Tribunal’s decision in Homefront Nursing Pty Ltd v Chief Commissioner of State Revenue [2019] NSWCATAD 145.

Grounds 1, 2, 3, 5 and 6

These grounds were dismissed on the basis that the Appellant’s submissions were questioning the factual findings of the Tribunal and did not address any questions of law.

Ground 4

The Appellant sought leave to rely on a new argument on appeal, that is that the exception in section 32(2)(b)(i) of the Payroll Tax Act applies. The Appeal Panel did not grant leave on the basis that the Appellant had the opportunity to run this argument at first instance but chose not to.

Ground 7

This ground was dismissed on the basis that the Tribunal is not bound by the doctrine of precedent to follow earlier NCAT decisions.

Where to now?

Unfortunately, the decision does not provide any further clarity on the potential payroll tax exposure to medical practices that engage doctors under service agreements.

Revenue NSW is due to issue a practice note on this decision shortly. However, until such guidance is issued, Thomas and Naaz and the Optical Superstore will continue to be the leading authorities for determining whether a service arrangement in the medical industry is subject to payroll tax.

How can we help?

If this is an area of concern in your business, our specialist team can review your current service arrangements and provide guidance and recommendations based on the current approach adopted by the Revenue Authorities.


For more information, please contact Anushka De Alwis.