News, views and more

The Chief Commissioner has recently assessed Uber as liable for payroll tax and interest in the sum of approximately $81 million for the financial years 2015 to 2020 pursuant to the Payroll Tax Act 2007 (NSW) (Payroll Tax Act).

This decision has highlighted vulnerabilities in the professional services sector, medical sector and other business relying heavily on contractors, which could leave many more businesses subject to payroll tax.

On 1 August 2025, the NSW Court of Appeal unanimously determined that Uber drivers were employed by the company under “relevant contracts” and money paid to its drivers were wages under the Payroll Tax Act 2007.

The decision could have strong implications for medical practices, highlighting that authorities were focused on commercial reality over contract wording when it came to determining “employee-like” relationships.

Implications for Medical Practices

The “service entity arrangement” is generally the most tax efficient for medical practices and other professional service entities.

In such an arrangement, doctors operate as independent practitioners under a single roof and pay ‘service fees’ to a separate entity that handle administrative work, including general management and operation of the practice.

However, if the arrangement begins to resemble an employment structure too closely, service entities could be subject to payroll tax.

In the 2021 case concerning Thomas and Naaz, a pair who owned and operated four medical centres in NSW, they were ordered to pay $795,292 in retrospective payroll tax after the courts found that their payments to doctors were taxable wages.

There is a false notion that maintaining separate bank accounts could minimise the risk of payroll tax liabilities.

Maintaining Adequate Separation

Medical practices operating under a “service entity” arrangement should ensure adequate separation between the medical business and the administrative business.

Tangible separation has become even more crucial in light of the recent Uber decision, which highlighted that authorities were increasingly focused on commercial reality over written contracts.

For example, if doctors answered the phone in the name of the medical centre, wore the same logo and branded front desk uniforms, and generally presented as a unified medical centre, the commercial reality could appear closer to a single business rather than a collective of independent practitioners.

Practices to Avoid for Service Entities

Administration businesses should avoid:

• Setting practitioner fees

• Rating practitioners

• Monitoring their billing

• Redirecting patients away from them

• Complying with RACGP accreditation standards unless the practitioners instruct you in writing to perform this type of service

Mitigating Payroll Tax Risks

Businesses should take practical steps to mitigate payroll tax risks, starting with identifying all non-employee workers and reassessing whether their roles fall within the ‘relevant contract’ provisions. This includes reviewing the level of control, integration into the business, and actual working arrangements, as well as reviewing each doctor, since some may be more independent than others (e.g. they have independent arrangements with other medical practices).

Even if you determine that the doctors’ arrangements are relevant contracts for payroll tax purposes, it is still important to have solid service entity arrangements in place to ensure GST is not charged on the payments received by the associate doctors and payments are not subject to superannuation or PAYGW.   The advantage of service entity arrangements for professional firms and medical practices include the ability for profits from the administration business to be distributed to entities other than the professional and allows business to minimise their exposure to risk.    

Balancing Control and Costs

Practices should consider whether it is worth losing control of the banking of patient fees for potentially a relatively small amount of payroll tax that could be covered by increased patient fees? The current annual tax-free threshold for NSW is $1,200,000.

Service Entity agreements should still be updated to reflect the commercial reality, with clear terms around independence, delegation, and the use of tools.

WLM can help