Payroll Tax And The Dental Industry

As many of you would be aware, there have been several recent payroll tax cases[i] that have had a direct impact on how the various states are now choosing to enforce payroll tax obligations on the healthcare industry.

The way payroll tax essentially works is that it is a state tax that is levied on salaries, wages, superannuation and labour hire contractors. Each state has its own threshold and payroll tax rate: in NSW for example the payroll tax rate is 5.45% on payments made in excess of $100,000 per month. So, in simple terms, if your business was paying salaries and wages of $120,000 a month in NSW, you would pay NSW payroll tax of 5.45% on $20,000, which is $1,090.

Payroll tax is widely despised as one of the worst taxes in this country as it punishes businesses that are successful and employ a lot of people. It was supposed to be abolished with the introduction of GST, but alas, we are still stuck with it.

Now, to make matters even worse, the recent payroll tax cases have resulted in disbursements of patient fees being taxable for payroll tax purposes. The below diagrams illustrate how, commercially and economically, many larger dental practices are structured.

Diagram 1 illustrates the commercial structure for many larger or group practice, both General Practitioner (GP) clinics and dental practices are typically structured in this way. The dentist or GP sees the patient, provides services to them, the practice collects the patient fees on behalf of the dentist. The practice is providing services and a facility to the dentist. This service, of course, includes the collection of patient fees.

Diagram 2
illustrates two things: the commercial interaction between the dentist and the practice, and the actual flow of cash from patient to dentist. Commercially, the practice is charging a service and facility fee to the dentist, and the dentist is paying it. Economically, what is occurring, however, is that the practice has collected patient fees on behalf of the dentist, withheld its service and facility fee and remitted / disbursed the balance of the patient fees to the dentist.

It is broadly the view of the various state governments (excluding Western Australia) that irrespective of the agreements in place this remittance / disbursement / payment of patient fees to the dentist is now subject to payroll tax.  The various revenue rulings go on to contemplate practices that restructure to avoid payroll tax; the position in the rulings is that such restructuring falls foul of the general anti-avoidance provisions and are therefore still taxable.

The ramifications for this across the dental and medical industries are vast. To further compound the confusion and disparity in application of this unfortunate new position is that all of the states are applying this differently. Some of the states have given GPs exemptions for certain payment arrangements (Queensland[i]) bulk billing GP clinics (ACT) or a moratorium that audits will not proceed for another 12 months (NSW).

None of the exemptions or carve outs – none of them – apply to dentists or allied health professionals.

How does this affect you?

In the case of a stand alone, sole trader dental practice, it is unlikely to have any direct impact at all. The long term impacts are yet to be understood or known. Will this push people out of corporates?

In the case of larger groups or corporate groups, the impact could be very material. Ultimately, if the facility at which you are practicing dentistry starts incurring additional costs in providing these services and facilities to you, then something needs to happen. Either the patients are charged more, you earn less, or the corporate group earns less. All three are undesirable outcomes.

What is the solution to this farce?

The writer has been lobbying at both a state and federal level on this issue since the first outcome of the Optical Superstore case in 2019iii. The Australian Dental Association has also been lobbying on your behalf. The two key issues, as we see it, are that:

  1. There are different rules being applied to GPs versus dentists.
  2. This is just bad law, and payments to healthcare professionals of their own patient fees in any form should be exempt from payroll tax for the wider community benefit of cheaper universal healthcare.

The Australian Dental Association website has a link with guidance on how to contact your local member of parliament and raise this issue. It is their job to assist their constituents in such matters. The only pragmatic way to fix this ridiculous situation is to change the law. The only way to change the law is via parliament.

[1]  Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue

[1] Public ruling PTAQ000.6.2 (

iii Commissioner of State Revenue (Vic) v The Optical Superstore Pty Ltd [2019]

About the author

Heath Stewart, CA, B.Com, M.Tax, CTA, Dip.FS (FP)
Chartered Accountant and Director
Ecovis Clark Jacobs
Accounting and Business Advisers

Heath Stewart is a Director of Ecovis Clark Jacobs, Accounting and Business Advisers, specialising in providing advice to dentists. Advice includes practice purchase and sale advice, planning for your financial wellbeing, superannuation, insurance, practice management and computer software. For a free assessment of your financial position and to see how you can achieve your goals, please do not hesitate to contact Heath on (02) 9264 1111.

This article first appeared in the December 2023 issues of the News Bulletin, published by the Australian Dental Association

This article is designed to provide generic information only and should not be viewed as a recommendation to act or financial advice. Individuals should seek advice from a qualified adviser to ensure their actions are commensurate with their financial needs and requirements. Whilst every effort has been undertaken to ensure accuracy of information at the time of publication, the information contained within the article may have changed prior to and subsequent to the article’s publication.

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