Are the payroll tax exemptions for medical practices really feasible?

Navigating Payroll Tax Reforms and Bulk Billing Challenges

In addition to pressure from the federal government to increase bulk billing rates, medical practices across the country are having to navigate payroll tax reforms set out by state governments that have done little to ease tension in the sector.

Also designed to promote bulk billing, many in the industry have dubbed the reforms unrealistic and failing in their ability to address the real issues impacting the financial situation of medical practices.

Professional bodies, such as the Royal Australian College of General Practitioners (RACGP), have called for consistency and clarity surrounding the issue – noting the potential impacts on the availability of quality patient care if payroll tax is imposed on independent practitioners.

How payroll tax applies

After several court cases laid precedents as to the distinction between a “contractor” and an “employee”, many businesses in the healthcare sector found themselves at the centre of the great payroll tax debate.

Applying not only to medical clinics but to specialist services, alternative health practices and so on, the need to factor in payroll tax costs has (and will) lead to higher operating costs which will inevitably need to be passed on to patients.  

In an effort to stop this happening in general medical practices, state governments issued a variety of payroll tax exemption incentives – yet kept them squarely aimed at those that operate almost entirely with a bulk billing model.  

For example, medical centres in NSW can seek an exemption for unpaid payroll liabilities before 4 September 2024. However, after this date, they are only eligible for exemptions if at least 80% of services are bulk billed in Sydney metro or at least 70% in other regions.

Similarly, the ACT has a temporary payroll tax amnesty until the end of the 2024-25 financial year (30 June 2025), though this only applies to GP clinics that:

• bulk bill at least 65% of GP attendance
• have registered with the ACT Revenue Office
• have registered for MyMedicare

Victoria has a slightly different approach – exempting all general practices from payroll tax on contractor payments until 30 June 2024 (extended to 30 June 2025 for practices that haven't started paying payroll tax on these payments). From then on though, payroll tax exemptions will only apply to bulk-billed consultations.

Where to from here

While the exemptions appear fair at face value, they fail to account for the reasons why many clinics have had to resort to reduced bulk billing rates in recent years.

Even before payroll tax became an issue, the growing administrative, technology, supply, facility, and utility costs endured by these businesses – coupled with minimal adjustments to bulk billing rebates – simply made the bulk billing model unsustainable.

So although a clinic may wish to bulk bill more to avoid payroll tax, the reality is that a large portion will be unable to…which consequently makes them ineligible for exemptions and leads to further price increases for patients.

For medical practice owners who are currently trying to navigate this evolving situation, they must carefully decide whether to:

• optimise billing practices to maximise bulk billing and meet exemption criteria
• re-negotiate management fees with doctors
• ignore the exemptions and increase patient fees as needed

Such decisions will require a strong understanding of the practice’s, personal situation, financials – past, present, and future – and a commitment to make informed decisions that ensure their business can afford to continue providing the vital services their communities depend on.  

If you run a medical practice and would like guidance in navigating payroll tax, pricing and MBS billing, or any other strategic or operational issue your business is facing, our National Health Services team is here to support you.

Key takeaways:

• Impact of Payroll Tax Reforms: Medical practices across Australia face increased financial pressure due to state-imposed payroll tax reforms, which complicate the sustainability of bulk billing models.
• Exemption Criteria: Various states offer payroll tax exemptions tied to bulk billing rates, but many clinics struggle to meet these criteria due to high operational costs.
• Strategic Decisions Needed: Medical practice owners must decide whether to optimise billing practices, renegotiate management fees, or increase patient fees to navigate these challenges effectively.

FOR MORE INFORMATION

If you would like to learn more about the topics discussed in this article, please contact Peter Nicol (RSM’s National Director of Medical) at (02) 6057 3000.