FYI – we are holding a payroll tax webinar on 21 June 2023. Watch out for the email invite if you want to join which you should receive in the next week or so.
It’s a disaster! Actually, it’s not.
But considering everyone in the medical industry (the AMA, RACGP, Practice owners and yes we accountants) seem to be running around with their arms in the air wailing about it, you would think the world was about to end. In other words, it’s a disaster.
To be honest it is a bit of a problem. But it may not be a disaster as everyone thinks it is.
You see we had a booth at the Skin Cancer Conference last weekend on the Gold Coast, and I was asked one question consistently by practice owners. Will I have to pay payroll tax?
But here’s the thing.
Contractor doctors do not think it affects them, so they have ignored it. They do so at their peril.
But let’s start at the beginning.
When payroll tax hit the headlines a few years back all kinds of professional firms told medical practices they had to review everything, and this would get them out of payroll tax. But to do this review they would charge a significant fee. Many also promoted that they would guarantee payroll tax would not be due but for some reason would never put that in writing. The AMA and RACGP jumped on the bandwagon too telling members to ‘get advice from AMA & RACGP partners’ who were selling such services.
I on the other hand told all my clients not to bother. Based on the legislation which I reviewed with reputable lawyers we concluded that payroll tax would be payable if practices did not change.
Anyway, none of my clients paid me for a ‘review’. But because of the scare tactics they did pay others. After all we always gravitate to lower taxes even if an expert says a tax is payable.
And now all those experts are basically telling practice owners they will have to pay payroll taxes unless they undertake ANOTHER review of the business. No wonder practice owners are so confused.
So, I am now going to be the accountant that acts like lawyer. I know. Having one accountant advising you is painful. Having an accountant and a legal professional? Well, that’s costly and exceptionally painful.
You see a lawyer will never give you an answer. Their answer is ‘it depends’. And so it is for payroll taxes. It really depends. It depends on how you operate and what the circumstances are.
But in most cases payroll taxes for GP practices will be payable. But if practice owners are willing to change the way they operate there is a possibility that payroll taxes will not be payable. Again, to use the favourite words of lawyers ‘it depends’. And to be honest it is quite difficult to explain on paper. That is why we decided to have a dedicated webinar on the subject. So, if you want to see if you can get out of paying payroll tax you will have to join the webinar.
But how does this affect contractor doctors?
Well, it is all based around how medical practices make money. 10 years ago, our regulators, based on advice from medical bodies, decided it was a good thing to limit the number of
doctors qualifying and limiting the number of doctors arriving from overseas. This was on the basis that quality would be maintained.
It was also good for doctor incomes. High demand for doctors mean high incomes for doctors. So happy days. Except it isn’t because the money has to come from somewhere.
A shortage of doctors meant the rate medical practices paid their contractor doctors was increased. 10 years ago a 60/40 split was normal. Today that is 70/30 in favour of the doctor. And I don’t blame contractor doctors. I would want the same if I was them.
The problem is that over the last 10 years there are added pressures for practice owners. If you give 70% away you are hoping all your costs and profits will be covered by the remaining 30% and I can tell you that after paying rent, support staff and other costs the margins or profit for a medical practice is 5% or less. Sometimes it’s a lot less and that is before payroll taxes.
If payroll taxes are payable, then your average medical centre could become loss making. If the average medical practice becomes loss making how many will remain open? So yes, it will affect contractor doctors in the long term.
Will contractor rates fall? I don’t know. Only time will tell.
What I do know is that most of our practice owner clients are looking at what they are making and thinking is it worth all the stress and hassle. If they have to pay payroll taxes it might enough to push them over the edge.
But as I said it is not a disaster. Here’s why.
I have medical practice owners that make good money from owning a medical practice. I have many clients outside the medical industry that operate on low or tight margins. Many not only make good money but some serious money. They do this by making their business a lean, mean and efficient machine. If all medical practices can do the same thing there is a good chance owning a medical practice is worth it.[/vc_column_text][/vc_column][/vc_row]
