Medical Practice Payroll Tax Decision: Thomas and Naaz Appeal Upheld

25 July 2022

In October 2021, Mahoneys wrote an article on the NSW decision of Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue (Thomas and Naaz),[1] where the Tribunal upheld the Commissioner’s assessment that the medical centre owner, Thomas and Naaz Pty Ltd (Medical Centre Owner), was liable to pay nearly $800,000 in payroll tax together with interest and penalties.

The article can be read here.

The Medical Centre Owner appealed the Tribunal’s decision, and lost.[2] The reasons for upholding the Tribunal’s decision and imposing pay roll tax are summarised below.

Background of Tribunal decision

By way of background, in the earlier decision the question of payroll tax liability hinged on three key issues:

  1. whether the agreement between the Medical Centre Owner and each of the doctors was a ‘relevant contract’ under the Payroll Tax 2007 (NSW) (Act), and if so;
  2. whether any of the exceptions under the Act applied, and if not;
  3. whether the payments were ‘in relation to the performance of work relating to the Agreements’.

Under the agreements, the parties agreed how the services would be provided and how the flow of funds relating to Medicare payments (which is particularly relevant to this appeal) would be dealt with. The Medical Centre Owner would make claims on behalf of the doctors to Medicare and then remit 70% of the Medicare claims (without any deductions for tax or superannuation or otherwise) to the doctors. The remaining 30% was retained by the Medical Centre Owner as a service fee.

It was ultimately held that:

  • the Agreement was a ‘relevant contract’;
  • no exceptions applied; and
  • the payments were in relation to services performed by the doctors relating to the agreements.

On this basis the Medical Centre Owner was liable to pay payroll tax on those Medicare payments.

Grounds of Appeal

The Medical Centre Owner put forward several grounds of appeal all of which were on the basis that there had been errors of law by the Tribunal.

The primary argument was that the Tribunal erred in construing and applying sections 32 and 35(1) of the Act. In particular, it was argued the Tribunal made an error in law by:

  • applying those sections of the Act in determining that the amounts paid to doctors were ‘wages’ that were ‘for or in relation to the performance of work’ (Grounds 1, 5 and 6);
  • finding there was a relevant contract, as it was argued by the Medical Centre Owner that it was the doctors who provided services to their patients, not the medical centre (Grounds 1, 2 and 3);
  • determining none of the exceptions applied (Ground 4); and
  • failing to follow or apply the case of Homefront Nursing [3] (Ground 7).

In relation to Grounds 1, 2, 3, 5 and 6, the Appeal Panel contended there had been no error of law but rather the Medical Centre Owner’s appeal rested on challenging factual findings. On this basis, the Appeal Panel dismissed each of those grounds in turn.

Grounds 4 and 7 were dismissed on technical grounds.

The Appeal Panel did make some remarks in relation to the Tribunal’s decision namely that, in relation to the finding of a relevant contract, the Tribunal’s approach was orthodox and in accordance with binding authority.

For now, the current view stands. The key takeaways from the earlier decision in our article outline the factors that will heighten the risk of payroll tax liability. This case does not contribute in any material way to that position.

The commercial team at Mahoneys is experienced in payroll tax legislation within the medical practice industry. If you would like to engage us to prepare or review your shared service agreement (including obtaining a copy of our guide ‘Service Agreements – “Serviced Office” Indicators’), or have any queries about the implications of this ruling, please contact Mahoneys commercial Partner, Antony Harrison, or lawyer Sabrina Austin on (07) 3007 3777 or or

[1] Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259.

[2] Thomas and Naaz Pty Ltd (ACN 101 491 703) v Chief Commissioner of State Revenue [2022] NSWCATAP 220.

[3] Homefront Nursing Pty Ltd v Chief Commissioner of State Revenue [2019] NSWCATAD 145.