This article was first published on The Medical Republic on 15 March 2022.
Be alert, but maybe not as alarmed. There are steps you can take to lower your risk of an audit and limit your exposure.
Medical practices are once again being reminded to take their payroll tax obligations seriously, with scrutiny from state revenue offices intensifying amid investigations uncovering high levels of non-compliance.
Government compliance audits fell during the height of the pandemic. However, both the Australian Taxation Office and the states’ various offices of state revenue (OSRs) are again ramping up their compliance activities. There is therefore an expectation that all audit activity will increase, not just in relation to payroll tax.
Payroll tax reviews
Regarding payroll tax, it seems that the practices being selected for audit are being chosen through a data-matching process. Audits are triggered where information reported to other government agencies (mainly the ATO and through Workers Compensation insurance returns) is outside the benchmark of other practices. Specifically, practices seem to be selected where tax returns have been lodged showing patient fee income as revenue and payments to the doctors as subcontractors (as with the Thomas & Naaz Case).
If you are losing sleep over concerns your practice will be reviewed for payroll tax, the first step is to review your tax returns for the past five years. Specifically, you should be looking for information reporting the level of subcontractor payments (if any) to see if this amount, when combined with wages and superannuation paid, exceeds the payroll tax threshold in your state.
If you are not confident with this review, speak with an adviser to assist you. It is a relatively easy process and should not be costly. This process is about assessing your risk level – it does not mean you are out of the woods. If your tax returns seem to be ‘ok’, you are not ‘safe’, but you can sleep more soundly. You still need to review your arrangements.
If you find that one or more of your tax returns is showing combined amounts over the payroll tax thresholds then action should be taken to review your payment systems and assess your potential payroll tax obligations. This action should be taken urgently to limit your potential exposure.
Reason behind spike in audits
William Buck has spoken to a senior compliance officer at Queensland’s OSR who confirmed that, while they are aware of the Optical Super Store Case and the Thomas and Naaz decision on payroll tax handed down in September 2021, the spike in activity is directly related to data-matching programs and not due to a specific targeting of the industry.
The officer said that while Queensland does not currently have any plans in place to extend the reviews, the OSR cannot guarantee that the current activity, which is detecting non-compliance within the medical industry, will not lead to a wider, industry-focused compliance program.
While it is concerning that from the practices selected, a high level of non-compliance is being reported, it is also somewhat expected. Logically, if the tax return has been completed “incorrectly”, it follows that other aspects of the practice’s arrangements with doctors, such as cash flow and service agreements, may also not be compliant.
Assess your risk of a review to determine how concerned you should be about a payroll tax review for your practice. Most practices should fall outside of the immediate data-matching review net. However, we are concerned that the high level of non-compliance detected could lead to further action in a worst-case scenario.
Therefore, act now to review your arrangements and take any remedial action as needed. Engage with industry specialists to ensure that you receive the most up-to-date advice.
Be aware but do not panic.
For more information on developing meaningful KPIs for your practice, please contact your local William Buck Health Adviser.