It was not so long ago that the AMA and other medical associations were patting themselves on the back for a job well done.
There were, at the time, many smiles, handshakes, fist-pumping and celebrations.
If you remember back then I wrote an article saying this will not last and the celebrations would be short lived.
Well, I can say with my chest pumping out that it seems I was right. But to be honest, I take no joy in this. But it seems the AMA and others are just like all other associations. They needed to show their members they can flex their muscles even if they know down the line it’s all crap. It is that, or they do not understand the rules.
All this does, though, is confuse you.
If you remember, I wrote that without a change in the law, the rules have not changed, and the ruling the Queensland Government came up with was just to shut up the medical associations for a while. And the medical associations fell for it.
Here’s why.
The law has not changed, so by telling medical practitioners that all they needed to do was change the way medical practices paid their contractors, they were, in effect, lying.
The SA AMA recently advised its members that changing the way doctors are paid will be good enough. This rang alarm bells for me. And speaking to legal boffs high in the chain have told me that just changing the way contractors are paid will not make a lot of difference when it comes to payment of payroll taxes.
That is because how you pay contractors is just one part. The other tricky part is if the practice is providing services to the public, and I can tell you almost 100% do. And that means payroll taxes are due.
When it comes to state taxes, I do not usually have an issue except payroll taxes. Payroll tax is just evil. It is badly written. It is stupid. Bonkers, in fact. It is unfair, too. And it is totally not relevant with the times and global economy we live in.
If all you have done is change the way contractors are paid and do not pay payroll taxes, you could be building up liabilities you do not know about. I have had discussions with some practice owners who have stated that because there is no money in the practice to pay any backdated taxes, they will just declare the practice bankrupt.
Err…. That may not work. Why? Well, as I said, the tax is unfair. Very unfair. And it is evil.
This is because of the grouping rules and liability rules. If you control a practice (say you own 60% of it), then payroll tax is grouped with any other entity (even if that entity pays no wages)
You control such an investment trust or company. Also, remember if you are associated with someone else, they can be grouped, too. E.g. siblings and spouses.
Let me give you an example. You own 60% of a medical practice. You also have an investment trust which has $1,000,000 in investments and that trust has never paid anyone a salary. Assume that we are in 2028, and you get an audit and are told to pay $600,000 in payroll taxes. The rules say that if your practice cannot pay it and you put the practice into liquidation, the state government can ask your investment trust to pay because, under the rules, all entities that are grouped are ‘joint and severally’ liable.
Told you this was evil.
So, what should you do?
Get advice. But more importantly, be vigilant when it comes to this evil tax. The medical associations either do not really understand the rules or showing a rosy face when all is not rosy.
Let me put it this way. If you change the way your practice pays its doctors but still provides services to the public, the chances are you will still be liable for payroll taxes, and I do not care what the medical associations or any ruling issued by a state government says.
That is because that is the law.
The law trumps rulings, so if, say, a Labour state government does not collect it or make it a focus, that does not mean the next liberal government won’t because they can as they have the law on their side. And they can backdate it with interest and fines. And that means potentially, all your investments are at risk, too.
So, you need to decide. Either you set the practice up properly and do not pay any payroll tax, in which case you should be OK. Or you just change the way you pay contractors but nothing else. In that case, you need to decide whether to pay payroll tax or not. If you don’t and then have an audit, you may be up for some big dollars to pay. If your practice cannot pay it, you may find that it comes after your investments.
If you would like more information on this, email Hitesh at hitesh@medisuccess.com.au or call 07 3161 9548.
