Tax for Medical and Dental Practices: The Three Issues Deciding the Sector

Issue 1: payroll tax on practitioners

State revenue offices have successfully extended the relevant-contract doctrine to medical and dental practices: arrangements where the practice collects patient fees and remits to practitioners have been held to make those payments wages, landing practices over the threshold with five-figure retrospective assessments. The exposure turns on structure details - who contracts with the patient, who collects, and what the agreements actually say - and amnesties and rulings have varied state by state. The difference between a compliant flow of funds and an assessable one is documentation most practices set up a decade ago and have not read since. This is the single highest-value review any practice can commission this year, voluntarily, before data matching does it for them.

Issue 2: service entities under scrutiny

The classic structure - practitioners' entities billing, a service trust or company charging the practice for rooms, staff and admin - remains legitimate at commercial rates with real services. But it is precisely the fact pattern the payroll tax cases, the PSI rules and the general anti-avoidance provisions probe from different angles. Service fees set at whatever moves the profit, rather than benchmarked market rates, are the audit finding. The fix is a documented, defensible fee basis - and where the group's returns are behind, nobody can even say what the current arrangement is, which is how structures drift into indefensibility.

Issue 3: PSI and the practitioners

Individual practitioners billing through entities live inside the PSI regime. The results test rarely fits patient-by-patient clinical work, so most rely on the unrelated clients or employment tests, with income attribution - no splitting, no retention - the consequence of failing. Add the personal layer, including Division 7A loan accounts in practice companies and unclaimed professional deductions, and the practitioner's own return deserves the same rigour as the practice's.

Catch-ups, done discreetly

Practices fall behind for the same human reasons as everyone else - growth, a partnership dispute, a health event of their own - with an extra sensitivity about it. The sequence is standard: BAS and super first, returns behind, remission on voluntary disclosure, with the practice additions - the payroll tax position reviewed during the reconstruction while the flow of funds is being mapped anyway, and service fee documentation refreshed. Nothing about a tax catch-up is reportable to a professional registration body; the fear of it is usually the only thing keeping practices behind.

General information only - not personal tax, financial or legal advice. Consider your own circumstances or speak to a registered tax agent. Remission of penalties or interest and payment plans are decisions of the ATO and outcomes can't be guaranteed.