New payroll tax guidance impacting medical & health practices in Victoria


Posted By and on 18/08/23 at 9:54 AM

In a significant move for the medical and health industry, the State Revenue Office of Victoria has released a ruling clarifying its position on the payroll tax liabilities of medical centres and other health practices (eg optometry, physiotherapy, psychology, chiropractic, wellness and other clinics, collectively referred to in the ruling and this article as “medical centres”).

The ruling, influenced by recent precedents such as Commissioner of State Revenue v The Optical Superstore Pty Ltd [2019] VSCA 197 and Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40 is, in the Commissioner’s opinion to address “increased opportunities for revenue avoidance” in the payroll tax space.


Payroll tax is a tax imposed by states and territories. It comes into play when an employer’s total Australian taxable wages surpass certain thresholds. In Victoria the thresholds are $700,000 of taxable wages annually or $58,333 monthly. Where the thresholds are exceeded then payroll tax becomes payable at a rate of 4.85%. Regional employers may be able to access a decreased rate of 1.2125%. A full comparison of rates and thresholds for 2022/2023 is provided at the bottom of this article.

Employers are responsible for self-assessing payroll tax, making it their duty to be informed about their overall wage expenditure in different Australian states and territories, and understanding what payments fall within taxable wages. Importantly, using the medical industry as an example, a contract between an entity that conducts a medical centre and a doctor engaged by it there as a practitioner   are “relevant contracts” for payroll tax purposes. This means payroll tax must be paid on payments to the doctor resulting from that contract. This applies where:

  • the practitioner carries on a business or practice of providing medical-related services to patients;
  • in the course of conducting its business, the medical centre:
    • provides members of the public with access to medical-related services
    • engages a practitioner to supply services to the medical centre by serving patients on its behalf; and
  • an exemption does not apply.

The SRO’s ruling casts a wide scope on what constitutes relevant contracts for payroll tax purposes. Key arrangements considered by the ruling are:

  • Separate businesses: Scenarios in which a health centre operates a distinct business alongside the practitioners it engages. Referencing the Commissioner of Taxation v Healius Ltd [2020] FCAFC 173 decision, the ruling recognizes that while for instance a medical centre and a practitioner may function as separate entities, the medical centre often supplies crucial operational and administrative support to practitioners. These provisions include facilities management, advertising, billing administration, and record maintenance, which enable practitioners to focus on delivering medical care. This operational control brings such arrangements within the ambit of relevant contracts, even though the practitioners maintain their own professional enterprises.
  • Circumstances where payments are not made by the medical centre: The payroll tax provisions require a payment to be made in relation to services or labour provided to the payor (eg the medical centre) and/or a third party (eg a patient). As noted in the ruling the payment does not necessarily have to originate directly from the medical centre to the practitioner. The ruling highlights instances where third-party intermediaries are used for payment management and yet the relevant contract provisions apply. For instance, if a practitioner assigns patient fees, including Medicare rebates, to an intermediary entity, the subsequent payments to the practitioner for their services can still be classified as wages paid by the medical centre. This approach is aimed at ensuring that the flow of payments does not disguise the real arrangement and relationship of the parties.
  • Tenancy Arrangements: The ruling also specifically references tenancy contracts. In an example provided in the ruling it is noted that the tenancy arrangement ultimately secures the provision of medical services by the practitioner to the patients of the medical centre. This therefore falls within a relevant contract in the eyes of the SRO.

This ruling will apply both retroactively and prospectively.

The ruling aligns with similar rulings in New South Wales, Queensland, and South Australia. Queensland and South Australia have announced an amnesty program for GP medical centres concerning their payroll tax compliance. This amnesty program offers a limited-time opportunity for medical centres to rectify any previous non-compliance issues without facing severe penalties. However, it’s important to highlight that no such amnesty program has been announced for medical centres in Victoria or New South Wales.


Whilst the ruling is not law (rather the SRO’s opinion) and some scenarios espoused within it have not been tested in the Courts, it is nonetheless imperative for medical centres to take note and immediate remedial action.

Medical centres (including larger health/wellness clinics) in Victoria should carefully consider their payroll tax compliance in light of the SRO’s position. Failure to take action to address potential payroll tax risks may expose the centre to increased penalties in the event of an audit or review by the SRO. With the numerous recent cases it is clear that this is a target area for the SRO and many more audits, reviews and investigations are expected to arise in the coming months.

Where it is identified that arrangements have inadvertently triggered payroll tax liabilities a voluntary disclosure to the SRO can be made. Taking this step prior to an audit, review or investigation may enable a significant reduction in penalties imposed.

Further, many medical centres and clinics operate on slender profit margins.  With the above new guidance, they will need to carefully consider the repricing of their offering to the public to accommodate the additional pay roll impost going forward in addition to the exposure for past years.

Given the intricacies of payroll tax laws, seeking professional advice is highly recommended. Medical centres should consult with legal experts specializing in tax law to ensure complete understanding and accurate compliance.


The current 2022/2023 rates are as follows (excluding any levies):

Victoria 4.85% or 1.2125% for regional employers Annual $700,000

Monthly $58,333

New South Wales 5.45% Annual $1,200,000

Monthly $95,982-$101,639

ACT 6.85% Annual $2,000,000

Monthly $166,666.66

Northern Territory 5.5% Annual $1,500,000

Monthly $125,000

Queensland 4.75% on salary and wages $6,500,000 or less then 4.95% thereafter. Regional employers may be entitled to a 1% discount on the rate until 30 June 2030. Annual $1,300,000

Monthly $108,333

South Australia Variable rates between 0% to 4.95% between $1,500,000 and $1,700,000, then 4.95% thereafter. Annual $1,500,000

Monthly $125,000

Weekly $28,846

Tasmania 4% between $1,250,001 and $2,000,000 then 6.1% thereafter.


Annual $1,250,000

Weekly $24,038

Western Australia 5.5% – 6.5% Annual $1,000,000

Monthly $83 333


If you have any questions, please reach out to a member of our Tax & Structuring team.

Want Tax & Structuring updates delivered straight to your inbox? Click here to subscribe. 

KHQ Lawyers - Laura Spencer

Laura Spencer Senior Associate

Laura is a lawyer in our Tax & Structuring team. She has worked in legal and advisory firms both in Australia and the UK, as well as at the State Revenue Office of Victoria... Read More

KHQ Lawyers - Jack Stuk

Jack Stuk Principal Solicitor

Jack is a highly skilled and experienced taxation lawyer, proficient in advising on complex tax issues for high net worth individuals, and across business, commercial and estate matters.

Jack’s... Read More