RSM Australia

Payroll Tax and Medical Practices - a Potential Game Changer

Tax Insights

The NSW Civil and Administrative Tribunal in Winday International Pty Ltd v Chief Commissioner of State Revenue has found that radiologists working at an imaging facility were employees of the facility provider for payroll tax purposes under the “employment agent” provisions.

This is a significant decision for two reasons. Firstly, it potentially applies to payments to many medical practitioners that have traditionally not been included in any payroll tax liability. Secondly, it continues the courts’ broadening of the interpretation of the “employment agents” provisions, seemingly with the (unsurprising) support of the Commissioners of State Revenue.

The Decision

Winday provided a fully equipped and staffed radiology facility operating on a bulk-billing basis in which specialist radiologists worked on a sessional basis under the terms of a Service Agreement with Winday. The Chief Commissioner of State Revenue issued assessment notices to Winday for payroll tax, interest and penalty tax for 2008 to 2013 on the basis that payments by Winday to the radiologists were subject to payroll tax under either the "employment agent" or "contractor" provisions in the Payroll Tax Act 2007 (NSW).

Before the Tribunal, the primary issue was whether the payments were caught by the employment agent provisions. In the NSW payroll tax legislation, it is covered by section 37:

  1. For the purposes of this Act, an employment agency contract is a contract, whether formal or informal and whether express or implied, under which a person (an employment agent) procures the services of another person (a service provider) for a client of the employment agent.
  2. However, a contract is not an employment agency contract for the purposes of this Act if it is, or results in the creation of, a contract of employment between the service provider and the client.

The same or similar wording is in all Australian payroll tax jurisdictions.

After examining how Winday conducted its business and the obligations imposed on the radiologists by the Service Agreements, the Tribunal found that the Service Agreements formed part of arrangement which comprised an employment agency contract.

As regards the question of whether Winday procured the services of the radiologists for its clients, the Tribunal rejected Winday's argument that the statutory framework of Medicare and the prohibition on anybody other than medical practitioners providing radiologist services meant that the patients were not its "clients". This argument by Winday is supported by the view in the decision in Health Services for Men & Ors v D’Souza & Ors.

The Tribunal found that Winday made an offer pursuant to its advertising to provide services to the public with the implied undertaking that it would procure the services of qualified radiologists to provide the required medical services. Accordingly, patients receiving those services were clients of Winday.


This is a really interesting decision. The “employment agent” provisions require that a person, in this case Winday, the practice manager, procures the services of another person, in this case the radiologist, for a client of Winday. The Tribunal has concluded that the patient is a client of the practice, rather than a client of the radiologist (or even the GP that referred the patient).

I am not sure if this decision is being appealed, but it seems to me an unusual conclusion by the Tribunal. Only a radiologist can render accounts for fees as required by the Health Insurance Act 1973, and all fees received by Winday belonged to the radiologist. How can the patient be a “client” of Winday’s?

It is interesting to note that the Tribunal also very quickly dismissed the argument by Winday that the section was aimed at employment agents. Counsel for Winday submitted:

"I don’t believe the tribunal should extend the range of situations where the employment agency provisions would apply in circumstances where it is totally outside of what the provision was introduced to deal with and that is disguise employment employee relationships, which certainly is not the case in either where the client is the patient or the GP.

It would lead to some very absurd results going forward. It would lead to a huge increase in the reach of the tax which clearly is not the way that the OSR tax the employment agency provisions at this point in time and if it was intended that that be the reach, then there should be something very specific to say that that was intended.

... I’m saying you need to interpret the legislation and apply the legislation to the facts."

The Tribunal concluded, based on some previous cases, that it should not be restricted from applying the words of the legislation as they stood. Many clients don’t think they fall within the legislation because they are not employment agents. A good reminder that you don’t need to be an employment agent to fall under these provisions.

The Fallout

If you conduct medical practices in this (standard) way, you should review the payroll tax aspects as a result of this decision. It could be a game changer that I am sure the Commissioners will roll out in their audits of medical practices.

Based on this decision, any payroll tax audit could assess payroll tax and penalties for the past five years.



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