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16 March 20235 minute read

Court confirms payroll tax applies to arrangements used by GPs and other healthcare professionals

The final Court case in Thomas and Naaz has been decided.  The Court confirmed that payroll tax applies to facility management agreements and other similar arrangements used by healthcare centres. 

Medical centres, dental clinics, physiotherapy practices, radiology centres and many other healthcare providers must now urgently review their arrangements.  Practitioners in all of the eastern States of Australia are affected.

On 14 March 2023, the NSW Supreme Court of Appeal dismissed leave to appeal the decision in Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2022] NSWCATAP 220 (Thomas and Naaz).

The facts of Thomas and Naaz are very broadly as follows:

  • Thomas and Naaz Pty Ltd (the applicant) operated three medical centres. It employed nurses, reception and administrative staff.
  • Medical practitioners entered into written agreements with the applicant to use rooms, access shared administrative and medical support services and see patients at the medical centres. The medical practitioners were required to pay the applicant 30% of the total amounts received from Medicare as a fee for the services provided to the medical practitioners by the applicant (administration fee).
  • The agreements imposed certain obligations on the medical practitioners, including a requirement to promote the interest of the medical centre, abide by operating protocols, to meet roster commitments, sign on and sign off and be physically present during rostered sessions, not take any action to channel patients away from the centre, a maximum amount of four weeks leave each year and a restrictive covenant.
  • The medical practitioners agreed to bulk bill patients in respect of all services provided on the premises. For all except three of the medical practitioners, for administrative purposes, there was an informal arrangement that the medical centre would collect the fees from Medicare on behalf of the medical practitioners and pay the net amount to the medical practitioner (after subtracting the administration fee).  Three of the medical practitioners collected the fees from Medicare directly and paid the administration fee to the applicant.
  • The Commissioner of State Revenue assessed payroll tax on the payments of the fees from Medicare (net of the administration fee) to the medical practitioners. The three medical practitioners who collected the fees from Medicare directly and paid the administration fee to the applicant were not assessed payroll tax.

In the first instance, the NSW Civil and Administrative Tribunal (NCAT) found that the payments from the applicant to the medical practitioners of the fees from Medicare (net of the administration fee) were subject to payroll tax.  This was on the basis that:

  1. the services provided by the medical practitioners were “a necessary part of the applicant’s medical centre business”. As such, the medical practitioners were providing services to the applicant by providing medical services to patients;
  2. the payments from the applicant to the medical practitioners were “in relation to the performance of work”; and
  3. none of the payroll tax exemptions applied.

The matter was subsequently appealed to the Appeal Panel of the NCAT.  The Appeal Panel dismissed the appeal on the basis that the challenges did not give rise to questions of law and therefore the grounds of appeal were deficient.



The NSW Court of Appeal dismissed the appeal on the basis:

  1. there was no error in the Tribunal’s finding that the medical practitioners were providing services to the applicants by providing medical services to the patients.
  2. the grounds of appeal were questions of fact rather than questions of law which the Court of Appeal did not have jurisdiction to appeal.

The NSW Court of Appeal nonetheless provided detailed reasoning as to why the arrangements in question were subject to payroll tax.


Recent public ruling

The decision of the NSW Court of Appeal is consistent with a recent public ruling published by the Queensland Revenue Office (Public Ruling PTAQ000.6.1: Relevant contracts—medical centres).  In the ruling, the Queensland Revenue Office has adopted a strict interpretation of the decisions of Optical Superstore and the Thomas and Naaz.  The ruling makes it clear that it is the view of the Commissioner that these types of arrangements will almost always be considered ‘relevant contracts’ unless an exemption applies.

It is understood that some of the other State revenue offices are also developing guidance documents on the application of payroll tax to healthcare practices which contain similar views.



The Queensland State Government announced a payroll tax amnesty for payments made to contracted general practitioners up to 30 June 2025 and for the previous 5 years.  It remains to be seen whether any other States will do the same.



The business model in Thomas and Naaz is very common for businesses of this nature.  In fact, it has been suggested that there are more than 7,400 healthcare practices that could be liable for payroll tax based on this interpretation of the law. 

Medical centres that are affected by this decision will need to decide whether they need to absorb the additional cost, change their pricing or restructure their business model.   With respect to the latter, some States have general anti-avoidance rules that would need to be considered before undertaking any steps to restructure.


How can DLA Piper assist?

We are experts in this area and can provide advice on whether any historical payroll tax liability may exist, how best to deal with unpaid payroll tax liabilities, and how to set up the business for success going forward.  Please feel free to contact us to arrange an initial free consultation.