Many medical practices haven been apprehensively waiting for the NSW Court of Appeal decision of Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue.[1]
On 14 March 2023, the Court of Appeal handed down its decision dismissing the appeal by the medical practice, effectively upholding the original Tribunal decision to impose payroll tax on the medical practice.
History of Thomas and Naaz
Mahoneys has been following this decision, and its implications on medical practices, since the NSW Tribunal first heard the matter back in 2021.
In our 2021 article, found here, we discuss the Tribunal’s original decision to uphold the Commissioner’s finding that the medical practice was liable for payroll tax. That decision was appealed by the medical practice.
Then, in our 2022 article, found here, we discuss the various grounds of the ultimately unsuccessful appeal that failed on first appeal to the Appeal Panel of NCAT.[2]
Following is a summary of the takeaways of the second appeal by the medical practice to the Court of Appeal.
Court of Appeal decision of Thomas and Naaz
Despite the appeal being dismissed on the basis there was no error of law in the previous decision, the Court of Appeal took the time to discuss two different payment mechanisms adopted by the medical practice.
The first mechanism arises where amounts payable to doctors are deposited into the medical practice’s bank account and then remitted to the doctor (less the service fee) (First Mechanism).
The second mechanism arises where amounts payable to doctors are deposited directly to the doctor and then the doctor pays the service fee to the medical practice (Second Mechanism).
All but three doctors operated under the First Mechanism. The Court of Appeal mentioned those three doctors and the fact that payments received by them pursuant to the Second Mechanism were not subject to payroll tax as they did not contribute to ‘taxable wages’.
Although this decision should be followed by Courts and Tribunals in other States and Territories outside of NSW,[3] the comments on the Second Mechanism were not a significant basis of the Court of Appeal decision. However those comments will be persuasive on Courts and Tribunals Australia-wide. The fact that the Court of Appeal made specific mention that the Second Mechanism did not engage the deeming provisions relating to payment (which in turn was a decisive issue that imposed the payroll tax) is great news for medical practices.
What are the implications of this Court of Appeal decision?
The decision, although a welcome one, raises various questions to be considered by medical practices.
- Are these comments by the Court of Appeal about the Second Mechanism binding or merely non-binding commentary which attribute little to no weight?
- It the Second Mechanism the silver bullet medical practices have been looking for to not trigger pay roll tax or will the Courts look at the facts and circumstances holistically?
- Will these comments by the Court of Appeal about the Second Mechanism pave the way for more robust contracts with doctors that can restrain and control their activities?
- Should GP practices in Queensland be applying for the amnesty in Queensland before 30 June 2023 and using the 2 year amnesty period to change their payment mechanisms? Click here for our article on that amnesty.
Only the future holds the answer to these questions. However the comments by the Court of Appeal about the Second Mechanism is consistent with what we have been advising medical practices for some time: the flow of funds is an important indicator when determining if pay-roll tax applies.
The commercial team at Mahoneys is experienced in payroll tax legislation within the medical practice industry. If you would like us to provide further advice about the implications of this decision, whether you are a GP deciding whether to apply for the amnesty or if you would like us to review your existing or implement new agreements, please contact Mahoneys commercial Partner, Antony Harrison, or lawyer Sabrina Austin on (07) 3007 3777 or aharrison@mahoneys.com.au or saustin@mahoneys.com.au.
We will continue to monitor the position in this area and publish any further updates, decisions and recommendations on our website.
[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 (6 July 2022).
[3] Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89.
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