Background
Dr Thomas and Ms Naaz were the directors of the applicant. The applicant operated three medical centres where a number of doctors entered into written agreements with the applicant to use rooms, access shared administrative and medical support services and see patients at the medical centres.
Patients did not pay the doctors directly for the medical services they provided. Instead, the doctors provided services to the patients and the patients assigned their medical benefits to the doctors. Then, the applicant, on behalf of the doctors, submitted the assigned claims for the medical benefits to Medicare and directed Medicare to pay those benefits to the applicant. The applicant retained 30% of the amounts received from Medicare as a fee for the services provided to the doctors by the applicant and returned the remaining 70% to the doctors.
On 10 April 2018, the Chief Commissioner issued five notices of assessment to the applicant concerning payroll tax for the period 1 July 2013 to 31 March 2018, including penalties and interest. On 15 May 2018, the applicant objected to the notices of assessment, and on 3 April 2019, the Chief Commissioner disallowed the objections.
The Applicant the applied for review of the assessments by the Tribunal.
The statutory framework
The Payroll Tax Act 2007 (NSW) (“the Act”) provides that if a relevant contract exists (s. 32) and payments are made for or in relation to the performance of work relating to such contracts (s. 35), then the person who is deemed an employer under the relevant contract (ss. 3, 33) is liable to pay payroll tax on those payments, which are deemed to be wages.
Issues
The Tribunal considered two issues in these proceedings:
- whether the payments of 70% of the Medicare benefits to the doctors were wages and therefore, subject to payroll tax for the purposes of ss. 32 and 35 of the PT Act. This required the consideration of whether the agreements were relevant contracts under s.32 of the Act and, if so, whether the payments made to the doctors were taken to be wages paid or payable for or in relation to the performance of work relating to the agreements under s.35 of the Act; and
- if so, whether there should be a remission of the interest and penalties as assessed by the Chief Commissioner.
The key contractual arrangements
The applicant provided rooms at its medical centres to the Doctors, as well as shared administrative and medical support services (including nurses, reception, administrative staff and the charging and collection of Medicare fees on behalf of Doctors).
The Doctors saw patients at the applicant’s medical centres. The patients did not pay the Doctors directly for the medical services provided. Instead, the flow of money was as follows:
- the Doctors “bulk billed” each patient and the patients assigned their Medicare benefits to the Doctors by completing a Medicare “Bulk Bill Assignment of Benefit” form;
- the Doctors had the option of dealing directly with Medicare to obtain the benefits that had been assigned to them by the patients, or having the applicant do so. All but 3 Doctors requested that the applicant do so;
- the applicant, on behalf of the Doctors, made claims on Medicare and the funds received by the applicant from Medicare were placed into an account held by the medical centre in which the Doctor saw the patient. Each medical centre had a separate account and all of the billings of the Doctors relating to that medical centre were received into that account;
- administrative staff employed by the applicant recorded and reconciled these payments; and
- at the end of the first four weeks of the Agreement, and every fortnight thereafter, amounts equal to 70 per cent of the claims paid by Medicare for a particular Doctor (without any deductions for tax or superannuation or otherwise) were paid from the medical centre’s bank account to that Doctor. The remaining 30 per cent was retained by the applicant as a service fee.
Applicant’s submissions
Issue 1 - Application of relevant contracts provisions
The applicant submitted that the agreements with the doctors were not ‘relevant contracts’ for the purpose of s. 32(1)(b) of the PT Act as:
- the agreements involved the doctors providing services to the patients and the doctors paying a service fee to the applicant for the provision of various administrative services, but no services were provided by the doctors to the applicant (at [27]); and
- the exemption in s. 32(2)(b)(iv) should apply as the doctors ordinarily performed their services to members of the public generally in each financial year (at [46]-[48]).
The applicant also submitted that the payments made to the doctors were not ‘for or in relation to the performance of work’ for the purposes of s. 35. The applicant relied on Homefront Nursing Pty Ltd v Chief Commissioner of State Revenue [2019] NSWCATAD 145 (“Homefront Nursing”)and submitted that the relationship between the payments and the performance of work was too remote because the Medicare payments factually belonged to the doctors and the applicant was simply returning that money to the doctors (at [61]).
Issue 2 – Interest and penalty tax
The applicant submitted that the penalty should not have been imposed because the applicant took reasonable care to comply with the, did not prevent or hinder the Chief Commissioner from becoming aware of the tax default and, in the alternative, that there was a reasonable excuse for failing to comply with the notices.
Chief Commissioner’s submissions
Issue 1 - Application of relevant contracts provisions
The Chief Commissioner submitted that the agreements between the medical centres and the doctors were ‘relevant contracts’ for the purposes of s. 32(1)(b) as the agreements involved the doctors providing services to the applicant to ensure that it could carry on business at its medical centres. This is analogous to the decision in Levitch Design Associates Pty Ltd as Trustee for the Levco Unit Trust v Chief Commissioner of State Revenue [2014] NSWCATAD 215 (at [27]-[29]). The Chief Commissioner also submitted that the exemption in s. 32(2)(b)(iv) could not be granted because the applicant’s evidence was unsatisfactory and no business records had been tendered (at [49]).
Further, the Chief Commissioner submitted that the payments made to the doctors were ‘for or in relation to the performance of work’ for the purposes of s. 35 as the agreements were entered into for the central purpose of each doctor performing clinical services in the medical centre and, contrary to the decision in Homefront Nursing, the circumstances of the payment, such as beneficial ownership, did not matter, as the payment for this section simply required the provision of money from one person to another: Commissioner of State Revenue v The Optical Superstore [2019] VSCA 197 (“Optical Superstore (VSCA)”) (at [62]).
Issue 2 – Interest and penalty tax
The Chief Commissioner submitted that the applicant had not met its onus to allow for the penalty or interest to be waived and that there was a lack of reasonable care by the applicant in not registering for payroll tax or responding to the Chief Commissioner’s enquiries (at [91]-[92]).
Decision
The Tribunal held that the agreements satisfied the “performance of work” requirement in s. 32(1)(b) of the Act, which requires that the services provided were provided for or in relation to the performance of work. The Tribunal determined that the provisions requires that the services supplied under the Agreement are work-related, citing Accident Compensation Commission v Odco Pty Ltd[1] at 612 and Smith’s Snackfood Company Ltd v Chief Commissioner of State Revenue[2] at [32] and [60]. The Agreement secured the provision of the Services provided by the Doctors to the patients of the applicant’s medical centres. In circumstances where such services were a necessary part of the applicant’s medical centre business, the Tribunal determined that the Doctors provided services not only to the patients but also to the applicant (at [39]).
The Tribunal held that the exemption in s. 32(2)(b)(iv) (ie performance of services of that kind to the public generally) did not apply because it was not satisfied that none of the exemptions in s. 32(2)(b)(i)-(iii) applied (at [50]). The Tribunal determined that:
- the exemptions in s.32(2)((b)(i) and (ii) applied (at [52}-[53]);
- but no evidence was provided to show that the exemption in s.32(2)(b)(iii) applied (at [54]).
The Tribunal determined that even if it had been satisfied that none of the exemptions in ss. 32(2)(b)(i)-(iii) applied, the evidence submitted by the applicant was insufficient to prove that the doctors (with 2 exceptions) performed similar services to the public generally (at [57]-[58].
The Tribunal concluded that all of the contracts were relevant contracts under s.32(2) (at [59]).
The Tribunal held that s. 35 of the PT Act operates to deem the applicant’s payments to the doctors to be wages. The Tribunal considered the provision of the services by the doctors to patients to be the ‘performance of work’ (at [64]), and was satisfied that those services related to the agreements made with the applicant (at [65]). The Tribunal held that there was a clear relationship between the provision of the services and the payments, accepting the reasoning in Optical Superstore (VSCA) (at [71]-[72], andstating that the decision in Homefront Nursing was not determinative of this case(at [70]).
The Tribunal held that there should not be any remission of interest (at [94]) or penalty (at [97]).
The Tribunal noted that only the market rate was imposed, and the circumstances did not warrant a departure from the usual position that such interest is rarely remitted.
The Tribunal noted that penalty tax was imposed at the default rate of 25 percent under s 27(1) of the Taxation Administration Act 1996 (TAA), and then increased to 30 per cent by the application of s 30 of the TAA. The Tribunal was satisfied that the applicant’s failure to engage with repeated attempts by the Chief Commissioner to obtain information concerning the applicant’s payroll tax position, and in particular its failure to respond to a Notice issued under s.72 of the TAA, constituted steps to prevent or hinder the Chief Commissioner from becoming aware of the nature and extent of the applicant’s tax default.
Orders
The Tribunal confirmed the assessments.
Link to decision
https://www.caselaw.nsw.gov.au/decision/17ba49dc933fd5acb37385cc
