Are you liable for payroll tax?

30 May 2022


A medical practice will be liable for payroll tax if its ‘payroll’ exceeds $1.2 million in a financial year. Money paid to an ’employee’ qualifies as ‘wages’ for payroll tax, but did you know that money paid to a contractor doctor under a ‘relevant contract’ may also qualify as ‘wages’ for payroll tax?

Legal background

More than two years have passed since the Victorian Court of Appeal decision was handed down in Commissioner of State Revenue v Optical Superstore Pty Ltd [2019] VSCA 197 (the Appeal). Optical Superstore (Store) was an optical dispensary. It provided consulting rooms and administrative services to contracting optometrists. The optometrists then provided optometry services to the public.

Income generated by each optometrist was paid to the Store and held on trust or the benefit of that optometrist. Each optometrist was paid monthly, based on the hours they worked. They then paid an ‘occupancy fee’ to the Store for the use of a consulting room.

The issue was whether the monies held on trust and then paid to each optometrist were ‘deemed wages’ and liable to payroll tax.

The Finding

At the initial hearing, the Victorian Civil and Administrative Tribunal found that because the money was held on trust it was not ‘a payment for or in relation to the performance of work’.1 Payroll tax was not payable. This view was upheld by the Victorian Supreme Court on appeal.2

However, the Victorian Court of Appeal overturned this decision. It found a ‘payment for or in relation to the performance of work’ could include a payment of money held on trust.

What does this mean for medical practices?

Although a Victorian decision, the Appeal means that money held on trust and then paid to a contractor (doctor) in NSW may qualify as ‘deemed wages’ for the purposes of section 35 of the Payroll Tax Act 2007 (NSW)(Act) and be subject to payroll tax. This decision has implications for medical practices in NSW.

When will a business be liable for payroll tax?

A business will be liable for payroll tax if:

  1. The payroll tax threshold has been reached;
  2. There is a ‘relevant contract’ in place between the practice and the contractor (doctor); and
  3. The contract does not qualify for an ‘exception’.

Has the payroll threshold been reached?

From 1 July 2020 the payroll tax threshold increased to $1.2 million, Any business whose payroll liabilities are lower than this amount will not be liable for payroll tax. Whether amounts paid to (doctor) contractors are subject to payroll tax will depend on the circumstances of each individual case.

Is there a ’relevant contract’?3

Money paid to a (doctor) contractor will qualify as ‘deemed wages’ and be subject to payroll tax if there is a relevant contract.4

The definition of a ‘relevant contract’ is broad and includes any agreement in the course of business whereby the contractor:

  1. Supplies services to another person, ‘for or in relation to the performance of work‘: or
  2. Has supplied to another person the services of persons ‘for or in relation to the performance of work’; or
  3. Gives out goods to natural persons for work to be performed by those persons in respect of those goods and for resupply of them to others (this category is not usually applicable in a medical context).

Revenue NSW has taken the position that Service Agreements providing for the mutual exchange of services between a service provider (providing administrative services) and a doctor (providing medical services to a practice’s patients) will ordinarily qualify as ‘relevant contracts’.5

However, an agreement to rent rooms to an independent practitioner who consults their own patients is less likely to qualify as a ‘relevant contract’.


There are a number of exceptions set out at section 32(2) of the Act. If an exception applies then the contract is not a ‘relevant contract’ for the purposes of the Act and payroll tax does not apply.

Key exceptions that may be relevant in a medical context are:

  1. Where a practitioner has worked in the practice for less than 180 days in a financial year;6 or
  2. The services are performed by a practitioner who ‘ordinarily performs services of that kind to the public generally in that financial year’.7 If a medical doctor works elsewhere and provides their services to the public at large (by visiting the local Hospital or regularly consulting patients at other locations), then this exception may apply. If a doctor has a business card with the practice logo, shares patients with other practitioners in the practice and does not work elsewhere, it will be difficult to prove they provide services to the public generally.

Are there any rights of review?

Once the NSW Tax Commissioner has determined a party is liable to pay payroll tax, the party has a right to formally object to that finding. It can do this firstly by lodging a formal Objection with Revenue NSW and then by making an application to the NSW Civil and Administrative Tribunal or the Supreme Court.8

It is important to understand the practice has the ‘onus of proving’ it should not be liable to pay payroll tax.9


Revenue NSW is currently auditing a number of medical practices and assessing their payroll tax liability. All agreements with contracting doctors (and other allied health) should be reviewed and advice sought from your accountants or lawyers.

This article was written by Scott Chapman, Partner and Chelsea Gordon, Senior Associate.

1 Optical Superstores Pty Ltd v CSR [2018] VCAT 169.
2 Commissioner of State Revenue v The Optical Superstore Pty Ltd [2018] VSC 524.
3 Payroll Tax Act, s 32(1).
4 Payroll Tax Act 2007 (NSW), s 35.
5 [2018] VCAT 169 at [82],
6 Payroll Tax Act s 32(2)(b)(ii).
7 Payroll Tax Act, s 32(2)(b)(iv).
8 Administration Act, Part 10.
9 Cornish Investments Pty Ltd v Chief Commissioner of State Revenue (RD) [2013 NSWADTAP 25 at [5-7], [29-36].

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