On 22 December 2022, the Queensland Revenue Office (QRO) issued a Public Ruling PTAQ0006.1 for Relevant contracts – medical centres.  The ruling came into effect on the same date and may affect general practitioners all the way through to medical specialists.

The impact of the ruling will depend on whether the practitioner’s arrangements are considered to fall within the relevant contract provisions.

If they do, even the payment of patient fees and Medicare rebates from the medical centre to the practitioner may be subject to payroll tax.  As you can imagine, it’s easy to reach the payroll tax threshold of $1.3 million when a percentage of patient revenue is treated as wages.

What does this mean?

When it comes to the QRO Public Ruling we have seen a range of legal advice and as a result, a variety of responses from clients.

For most practices, the 2023 financial statements and tax returns will likely have been completed.  Although the QRO is already undertaking audits, the additional data they will receive once the Australian Taxation Office (ATO) processes tax returns and shares its data matching will likely see a further increase.

Payroll tax and business valuations

But the impact of this Ruling is not limited to a potential audit somewhere in the future and additional payroll tax liabilities.  If you are looking to sell your medical practice, buy into a practice or are the subject of litigation proceedings such as a family law matter, failing to properly address the relevant contract provisions will impact the value of your practice and the entity that owns it.

If the relevant contract provisions apply, the additional payroll tax expense that the practice incurs should be included in the assessment of your ongoing earnings (technical term: future maintainable earnings).  Where the practice has positive ongoing earnings which are subject to a multiple, the impact of the omitted expense is also multiplied, resulting in an overstated practice value.

A recent example we have seen was for a potential medical business sale.  We were instructed to undertake a valuation for a practitioner who had received advice that their structure did not require a change as a result of this Ruling.

However, even if the practitioner is relying on this advice and taking no further action, the buyer of the business may still seek their own advice, as this Ruling will likely be of interest to them.

Depending on the position you are in, should a QRO audit occur after a property settlement or after you buy into a practice, you may find that the practice value has been overstated on top of the additional payroll tax liability.  Alternatively, as a seller, you leave yourself open to attack by potential buyers who will use your lack of action to put downward pressure on the practice value.

Learn more

If you would like to discuss any of the above or would like assistance, contact Angela Stavropoulos, Kristy Baxter or Jennifer Veitch on taxmed@pilotpartners.com.au or (07) 3023 1300.