AusDoc special report: General practice and its battle with the ‘existential’ threat of payroll tax
“You agree it’s an existential threat?”
“Yes.”
“Practices going bankrupt?”
“Yes, if they start backdating their demands. If not, then it will just make the practice financially unviable and the government’s hopes for bulk-billing [concession card holders] will sink. Practices won’t be able to afford it.”
Much ink has been spilt on payroll tax and general practice. The exchange quoted above was a recent conversation with the boss of one of the major corporates, someone not prone to say wild things.
Practices across large parts of Australia are being targeted for audits. The true scale of the enterprise remains unclear, the alarm it’s causing is a little more apparent.
During a packed Sunday morning session of the RACGP’s practice owner conference in Adelaide a few weeks back, the audience was warned not to avert their gaze.
“There’s a lot of Facebook sites, there’s a lot of arguments about where the silver bullet is… There are plenty of ideas [about ways to escape],” said Paul Copeland, a director of William Buck, an accounting and advisory services firm.
“The worst thing you can do is to keep your head in the sand. If you continue to ignore it, that will be at your peril.”
This is worth stressing because there is a widespread belief that some legislative fix is coming involving mass exemptions for the sector based on its special status providing healthcare.
So a fairy godmother will sprinkle fairy dust on state and territory treasury ministers who will awaken from their slumbers to see the looming reality of a dark future of angry voters as electorates are slowly decimated of GP practices.
There are some reasons why that may not happen any time soon.
Yes, it’s partly about the hunger for tax dollars, of course. State governments like the cash even if the cash they extract from GP practices probably won’t pay for a new tertiary hospital election pledge anytime soon.
The other element, one also described by the corporate boss, is the message sent if GP practices are given special treatment.
What about dental practices or opticians or pharmacies or the other private specialist clinics, what about the slippery slope?
And pollies, from the treasurers down, are generally bewildered why GP practices aren’t paying payroll tax already. There are 7000 GP practices in Australia. Has it been some kind of industry dodge?
To many in the RACGP audience, the taxman’s doorknocking is the fallout of the Thomas and Naaz case, that civil case that has rumbled through the courts which involved a group of practices in NSW owned by Dr Jawahar Thomas.
They were originally audited way back in 2018, with NSW tax officials deciding the arrangement the group had with its 40 doctors and other practitioners should see them classed as employees for payroll tax purposes.
The subsequent appeals against the resulting $800,000 tax demand reached the NSW Supreme Court of Appeal this year where three judges declared in favour of the Chief Commissioner of State Revenue.
The MBS billings that the group paid to the GPs — 70% under this particular structure — were considered taxable for payroll tax purposes.
These were not doctors carrying on their own practice — buying in administrative support services to support their work. In the context of the tax, they were employees clocking in and clocking off.
It’s been bad news. But the reason it’s bad news is that it’s a bad test case — Dr Thomas’ arrangements, at least that which Mr Copeland made clear at the conference, were in many ways not reflective of a typical practice.
Under the Dr Thomas cashflow structure, the money flowing to the group was being treated as revenue from patients, not the billings of doctors.
The doctors themselves were under fairly onerous obligations in the service agreements that had been drawn up.
In fact, there were many elements of the business that, to the judges, made an employer-employee model explicit.
“The problem is that the government and the courts [are] now basing their decisions [to make tax demands] on this ruling,” Mr Copeland said.
“But they’re not using the best example. You’ve a lot of practices out [there] where only the service fee is recognised as revenue, patient fees are isolated to separate bank accounts and importantly they have much clearer service agreements in place.”
On this basis there is some hope, then. Some careful restructuring may allow the great escape.
But it’s complicated. During the conference session, Ben Ryan, a senior associate at Avant Law, went through some of the options.
There is the obvious cashflow fix: don’t make any payments from the practice to the doctor. Allow the MBS/patient cash to flow straight into the doctor’s account, with the doctor clearly paying a fee for the practice’s administrative services.
For those not already doing that in a way that a tax official can see when going through the books, it requires accountancy advice and new contracts — which isn’t always cheap, obviously.
The cash flow fix has other potential consequences — it creates headaches for those dreaming of pushing GPs away from fee-for-service.
If the Federal Government’s voluntary patient enrolment scheme does start offering $2000 a go for a practice to keep a frequent flyer patient out of hospital, can they do that without forcing the practice to make payments to the doctors caring for them. It is the sort of thing that can put the entire registration dream in peril.
There are more radical options for escaping payroll tax like restructuring the practice as a partnership. The issue here, as described to the conference audience, was what happens if one of the partners has a night of fun at the casino and decides to raid the practice finances because of a misplayed hand of Texas hold ’em?
The image provoked a little laughter but the point was made.
Mr Ryan even mentioned the potential importance of changing the words on the practice website.
So Dr Blogs should no longer be described as one of the clinic’s doctors (with the implication that they are employees) but as ‘your doctor’, with the implication that the arrangement is between the GP and the patient.
Some practices are already doing the edits apparently.
But the issue for both lawyers and accountants is simply that greater legal clarity is required to guide the actual responses of GP practice owners.
Given the Thomas and Naaz structures weren’t typical — a product of a business seeing a need to apply a heavy hand to the doings of the GPs — another test case is needed, a practice owner willing to seek a court judgement on a structure more reflective of the wider reality.
That is big ask — time, money and not least the immense stress that can be involved.
After the lawyers and the accountants, Dr Aaron Chambers took to the podium to talk about his entanglements with the taxman and his practice Growlife Medical in Brisbane.
He says he got the first tax office letter in February last year. He knew something of what was coming. He had watched on as a solo contractor himself when the practice he was working at faced a tax demand and it nearly went broke.
“So when this letter landed in our inbox, we were relatively confident despite the anxiety obviously with the Thomas and Naaz case. We had everything set up correctly. We were told we were about as good a place it gets.”
They were initially given two weeks to respond. Their accountant was undergoing chemo. But with much effort collecting the accounts information covering five years of the practice’s finances, they put together a detailed response. They were told the revenue office would get back to them in a couple of months.
When that eventually happened, they realised their efforts were in vain. The bill was substantial.
“For us, it basically swallowed any profit [we’d] made [in] the last three years and of course there [was] some anxiety. We were surprised because despite the pages of submissions we made we only got one paragraph to explain their reasoning and that paragraph said, because it just is.”
He says he is now going through the payroll tax objection process which sounds like a particularly dark and menacing wormhole. The inspirational element in his story was his next decision — the decision to get political.
It started with him contacting staff at AMA Queensland (led by Dr Maria Boulton) and the RACGP’s Queensland faculty (led by Dr Bruce Willett).
“I then arranged a chat with our local member. And by August last year we had drawn up a letter documenting what was happening to us.
“The crux of this letter was [that payroll tax demands] will essentially mean the collapse of general practice in Queensland given that the average margin was reported at 3 or 4% of billings and the tax is nearly 5% of billings.
“Really, it doesn’t take rocket science to realise that nearly every practice [that] is subject to payroll tax will be insolvent…
“It didn’t seem to make any sense to me that on one hand the treasury’s taking money and the other hand, health is trying to work closer with us and they’ll get more effort out to general practice.
He also went before the media.
“I was pretty nervous. And to be honest, my family and my trusted mentor said, ‘Look, I don’t think that’s a good idea, Aaron, your, you’ve got to put yourself out there. Your neck will be on the chopping block’.
“And apart from anything else at a personal level, the embarrassment and shame comes with this stuff…
“But it was through having this conversation that I’ve realised actually there’s no reason to be embarrassed. We are in the midst of some huge waves sweeping through the economics of the health system of Australia. And it’s our job to stand up and talk about it.”
He said he was suddenly speaking to other owners about the tax demands they were receiving. It was all done on a no-name basis. That shame again.
But it included a practice group with a patient base of 250,000 patients which was facing a tax demand of $3 million when you included the demands for backdated payments.
“It was enough to make them insolvent… Can you imagine the impact of a practice group that looks after a quarter of a million patients who built that group from the ground up and what that would do to those patients, their families, the communities and the state health system in that area, if that collapsed?”
So the AMA/RACGP campaign evolved — especially when a few days before Christmas the Queensland Revenue Office published a new ruling — so-called PTAQ000.6.1 — which was a statement of its intent to go after medical centres.
“Maria and Bruce are both fantastic advocates, playing a little bit of a good cop, bad cop role,” Dr Chambers says in tribute to the support they and their backroom staff gave him.
Elements of the campaign had been clever he said — for instance, a practice owner meeting the state Treasurer, untouchable through the formal channels, by booking themselves into a local party event.
And through the various political networks operating in the state, people also started contacting politicians, including the backbenchers with the capacity to make noise in the party room when their constituents are being burnt.
“You know what I didn’t understand?” Dr Chambers said. “It was that they didn’t have a clue how any of this would affect general practice. They didn’t really understand payroll tax at all. And it was actually a case of telling them from the ground up what this means for their local community.”
Initially there was pushback from ministers, he says, no doubt because the Opposition had jumped on board with the doctors to push the concerns.
There was a media conference on 31 January where Dr Chambers spoke about his experiences.
“But we got a headline in The Courier Mail the next day because the Treasurer took exception to what he saw and really pushed back and said, ‘Look, they just need to get it right, and they’ve been doing the wrong thing all the time. We’ll give ’em some education.’”
But that didn’t happen.
“It began to snowball,” said Dr Chambers.
Again, as a result of behind the scenes work by the Queensland branches of the AMA and RACGP, the payroll tax issue became a regular news item in the local media. Given tax structures and the legal implications of the fine print in GP service agreements functions as Mogadon for the masses, this was an achievement.
Surely it would go through the media mincemeat machine with a ‘greedy doctors’ sausage coming out the other end? Well no.
They are now embedded on YouTube but Dr Chambers showed the conference audience the news clips from Channel Nine aired in the weeks following the publication of PTAQ000.6.1.
The presenters look serious revealing the bombshell about to fall on viewers with the end of bulk-billing for the most vulnerable residents.
Then comes a clip of an Inala GP, Dr Matt Young.
Voice over: “Dr Matt Young spends a lot of time assisting the homeless and others on the fringes. He says, GPs are already struggling to see as many patients as they can with the time and funding they’re allocated.”
Then come images of Dr Young with his patients.
Dr Matt Young: “If you are going to create a two-tier health system where people that are well-off are getting well looked after and people that can’t afford it, living on some kind of medical scrap heap, even on some kind of extra fee, then that makes me a little bit embarrassed to be a Queenslander.”
Dr Chambers said the results of this were instantaneous.
The RACGP and the AMA suddenly got a summons to meet the Treasurer in his office — at an hour’s notice — where they were given the chance to explain what was happening.
The Treasurer it seems also had no inkling. He didn’t understand. He was one of those wondering why GP practices weren’t paying payroll tax like everyone else. But he did listen and he did act.
If you want to know why the next day the Queensland premier declared a payroll tax amnesty in place for GP practice until 2025, and one which is backdated to 2018, it is those lobbying efforts — the AMA and RACGP staff, the meet and greets, the media coverage, the emails to MPs, the calls to journalists, knowing when to shout and when to stay silent.
As regular readers of AusDoc will know, it has a passing resemblance to the modus operandi used by the Pharmacy Guild of Australia – save for the political donations.
If other states and territories aren’t going to issue mass payroll tax exemptions for general practice for the reasons given above, this amnesty is the next best thing, according to Mr Copeland.
It is not perfect and not without cost for GP practices but it provides time to ensure the practice structures work, that the service agreements are robust and the arrangements between the doctor and the practice are clearly documented.
Dr Chambers said: “We have been criticised for the campaign, that we shouldn’t have got out there and told the story. The argument was that we’re just going to draw more attention [from the tax office].
“But payroll tax is a tax on patients seeing their GP and when you can’t raise fees as you can for privately billed patients, it’s most strongly going to impact the most disadvantaged.
“And reflecting on the whole thing, this is what I came up with. Laws are not written in stone, they’re just paper. They’re crafted by our elected leaders to try and make our society better.
“So when the rules are wrong, it is our responsibility to go out and change them.”
He ended his presentation with a simple message of empowerment for the specialty as whole: “Please see what you can do.”
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