The conversation I have most often with practice owners at the moment doesn’t start with tax planning. It starts with a letter.
A state revenue office writes asking about the practice’s contractor arrangements, and suddenly a business that has run the same way for fifteen years is looking at a liability going back five. It’s the single largest unbudgeted exposure sitting in Australian medical practices right now, and the window in which practices could quietly fix it has closed.
Here’s where things actually stand.
Why contractor doctors get caught at all
Most practice owners assume that if a doctor is a genuine contractor — own ABN, own provider number, own tax return — there’s no payroll tax. That’s an income tax way of thinking, and payroll tax doesn’t work that way.
The Payroll Tax Act 2009 (SA) contains “relevant contract” provisions, harmonised with every other mainland state. Under section 32, where a person supplies services to a business under a contract, payments under that contract are deemed to be wages — regardless of whether the person is an employee, a contractor, or operating through their own company or trust. The deeming does the work. Whether the doctor is genuinely in business on their own account is beside the point once the provisions apply.
There are exemptions, and they matter — I’ll come to them. But the starting position is that a service agreement between a practice entity and a contractor doctor is a relevant contract unless you can bring it within one.
Thomas and Naaz: the case that changed everything
Thomas and Naaz Pty Ltd ran three medical clinics in Sydney under an arrangement almost every practice in the country would recognise. Patients were bulk billed. Medicare paid the practice. The practice kept 30% as a service fee and paid the remaining 70% to the doctors.
The Tribunal found those were relevant contracts, and the assessments — over $795,000 across five years, plus interest and 30% penalties — were upheld. The Appeal Panel dismissed the practice’s appeal in July 2022, and the NSW Court of Appeal dismissed the further appeal in March 2023.
What mattered wasn’t the label on the agreement. It was the substance:
- The money flowed through the practice. Medicare paid the practice, and the practice paid the doctors. That single fact does most of the damage.
- The doctors had obligations to the practice. Set days, notice periods for leave, agreement to promote the practice’s interests and follow its protocols.
- There were restraint clauses applying after a doctor left.
Read that list again and be honest about how closely your own agreements match it.
What the revenue offices say about the flow of funds
Revenue Ruling PTA-041 — adopted in substantially the same form across the harmonised states — puts it bluntly: the source of the funds used to pay the practitioner doesn’t change the character of the payment. If the practice collects patient fees and remits a share to the doctor, that share is wages.
The ruling does accept that some arrangements fall outside the provisions entirely. Genuine tenancy or licence arrangements, where the practitioner:
- collects their own patient fees and manages their own billing,
- claims Medicare in their own right under their own provider number,
- holds their own patient records and their own patient relationships, and
- pays the practice a fee for rooms and services rather than receiving a share of collections,
are a different animal. But the ruling is equally clear that an agreement labelled a tenancy will still be a relevant contract if, in substance, the doctor is serving the practice’s patients.
The exemptions that actually exist
Two exemptions in section 32(2) do real work in practice:
Services to the public generally. Where the practitioner ordinarily provides services of that kind to multiple principals — other practices, hospitals, locum work — the Commissioner can be satisfied the contract is exempt. This is the most commonly available exemption for specialists who genuinely work across several sites.
The 90-day exemption. Where the practitioner performs work for the practice on no more than 90 days in a financial year. Each calendar day counts as one day regardless of hours, so this suits genuinely occasional arrangements only.
Both require evidence, not assertion. If you’re relying on either, the file needs to show it.
Where each state landed — and why specialists should be worried
Every state responded to the fallout differently, and the position in August 2026 is genuinely patchwork:
- South Australia — a proportional exemption for GP wages from 1 July 2024, based on the practice’s bulk billing rate. Bill privately and that portion stays taxable. The retrospective amnesty covering 2018-19 to 2023-24 is long closed; registration ended 30 November 2023.
- Queensland — the most generous position. A permanent exemption for all GP wages, employee and contractor, from December 2024.
- Victoria — a partial exemption from 1 July 2025 for fully-funded work only. Privately billed consultations remain taxable.
- New South Wales — a rebate rather than an exemption, requiring 80% bulk billing in metropolitan Sydney or 70% regionally.
- ACT — a permanent exemption from 1 July 2025 for bulk-billed, DVA and workers compensation services.
- Western Australia, Tasmania and the Northern Territory — no medical-specific exemption.
Now the part that gets missed. Every one of those exemptions was written for general practice. Not one extends to specialists, and not one extends to allied health.
If you run a surgical practice, a specialist rooms arrangement, a dental practice or an allied health group, there is no relief anywhere in the country. The relevant contract provisions apply to you in full, and the only protection available is the structure of the arrangement itself. In South Australia, relief for contracted specialists and dentists existed only under the amnesty — and that was retrospective and is now gone.
The grouping trap
This is the one that catches practices that thought they were nowhere near the threshold.
South Australia’s tax-free threshold is $1.5 million in Australian wages, phasing up to the full 4.95% rate once wages exceed $1.7 million. A practice paying $900,000 in staff wages feels comfortably clear.
But a service entity and the practice it services will be grouped. The threshold applies once across the entire group, not once per entity. Add deemed wages for four contractor doctors to the group’s payroll and a practice that has never lodged a payroll tax return can find itself over the threshold — with five years of history behind it.
The Commissioner has a discretion to exclude a member from a group, but it requires the businesses to be carried on substantially independently of each other. A service entity, by its nature, isn’t.
What restructuring actually requires
Practices that have genuinely reduced their exposure have done it by changing the facts, not the paperwork:
- Patients pay the doctor, not the practice. The doctor’s bank account receives the fees.
- The doctor claims Medicare in their own right.
- The doctor invoices the practice — or is invoiced by it — for rooms, staff and services, and pays that fee. The direction of the money reverses.
- The doctor holds their own patient records, sets their own hours and fees, and is free to work elsewhere.
- No restraints, no rostering, no obligation to promote the practice.
That’s a real commercial change with real consequences — for cash flow, for practice control, for goodwill and for what happens when a doctor leaves. It shouldn’t be done on a template.
And it has knock-on effects. Superannuation guarantee has its own deeming rule for contracts wholly or principally for labour. Workers compensation has its own definition of deemed worker. Redirecting fee flows can affect the service entity’s margin and how it sits against the ATO’s benchmarks in TR 2006/2 and PCG 2021/4. Solving payroll tax while creating a super guarantee shortfall is not a win.
What to do before 30 June 2027
If you engage contractor doctors and you haven’t had the arrangement reviewed since 2023, the honest position is that you’re carrying an unquantified liability.
Three things worth doing now:
- Quantify the exposure. Work out what the deemed wages would be across the group for the last five years. You may find you’re under the threshold anyway — that’s a good afternoon’s work either way.
- Read the agreements against the facts. Not what they say. What actually happens with the money, the records and the roster.
- If you’re a specialist, dental or allied health practice, treat this as urgent. There’s no exemption coming and no amnesty left.
The practices that have come through this well are the ones that dealt with it before the letter arrived. The ones that waited are negotiating.
We work with medical practices and specialists across Adelaide on payroll tax exposure, practice structuring and service entity arrangements. If you engage contractor practitioners and haven’t reviewed the position recently, it’s worth a conversation before it becomes a review.
Nitschke Nancarrow Chartered Accountants
338 Glen Osmond Road, Myrtle Bank SA 5064
1300 059 670
This article is general information only and does not take your personal circumstances into account. Please seek advice specific to your situation before acting.
Author
Kym Nitschke is the Managing Partner of Nitschke Nancarrow, an Adelaide accounting and financial advice firm he has led for over two decades. A Fellow Chartered Accountant with degrees in Commerce (Accounting) and Economics, Kym is also a licensed financial planner, mortgage broker, property developer and licensed builder — and has specialised in the financial affairs of doctors and medical professionals for more than 20 years. He hosts the Accounting Insider podcast.
