Payroll tax and medical practices: the exposure most clinics don't know they have
Calling a practitioner an independent contractor does not settle payroll tax. The contract, clinic model and payment flow all matter.
Why contractor labels are not enough
Victorian payroll tax applies to employee wages, but the Payroll Tax Act can also deem payments under certain contractor arrangements to be wages. The relevant contract provisions can apply even where a practitioner is not a common law employee.
The State Revenue Office ruling for medical centres covers medical, dental, physiotherapy, radiology and similar practices. It focuses on the services supplied under the arrangement and the business conducted by the clinic, not only the label on the agreement.
The common clinic pattern
Risk can arise where the clinic presents a medical service to the public, gives patients access to practitioners, provides rooms and administration, collects patient or Medicare receipts, and then pays a percentage to the practitioner or the practitioner's entity.
The SRO gives an example in which a clinic receives fees and Medicare rebates, calculates each practitioner's share and transfers it to the practitioner. If the underlying arrangement is a relevant contract, the payment can be deemed wages. Routing receipts through a trust account does not by itself decide the tax treatment.
Victoria's GP exemption changed the calculation
From 1 July 2025, wages paid or payable by a GP medical business for fully funded items of GP work can be exempt. The exempt proportion is based on fully funded GP receipts relative to total GP work receipts, excluding specified consumable amounts.
The exemption is not a blanket exclusion for every payment to a GP. The remaining taxable component still needs to be calculated and reported. The SRO also states that this fully funded consultation exemption does not apply to allied health professionals or dentists.
Contractor exclusions need evidence
The relevant contract rules contain exclusions. The SRO identifies three commonly considered in healthcare: services provided for less than 90 days, a contractor who ordinarily provides services to the public, and services performed by two or more people. Each has detailed conditions.
Do not assume an exclusion from a practitioner's ABN, multiple clinic locations or a company invoice. Test the actual facts each year and retain evidence. Changes in rosters, billing, staffing or clinic branding can change the outcome even when the written agreement stays the same.
Run a practitioner payment review
Map every practitioner, contracting entity, agreement, service location and payment stream. Record who bills the patient, who receives the money, who sets fees, who supplies staff and equipment, how the clinic is marketed and which exclusions may apply. Reconcile the result to payroll tax returns and thresholds across any grouped entities.
If the historic treatment may be wrong, quantify the periods and amounts before contacting the SRO. The review should involve both the legal agreement and how the clinic actually operates. Changing the payment account without changing the commercial relationship is unlikely to resolve the underlying issue.
Primary sources
Rules and lender requirements change. These sources were checked when this article was published.
This article is general information current at the date of publication. It doesn't take your circumstances into account and isn't tax, legal or financial advice. Speak to a registered tax agent about your situation.
