Payroll tax on contractor doctors

Engaging doctors as contractors is the standard model in Australian general practice, and it is the arrangement that creates the largest payroll tax exposure a practice has. This guide answers the question a practice owner actually asks: am I liable for payroll tax on my contractor doctors? It is the medical-specific counterpart to our contractors and relevant contracts guide, which sets out the relevant contract provisions for any industry. This page covers what a medical practice has to decide about its own doctors.

What creates the liability

The liability does not come from the label on the contract. It comes from the money flow. Where a practice bills Medicare in its own name, collects the benefit and the patient contribution, retains an agreed service fee and remits the balance to the doctor, the revenue offices treat the amount remitted as wages for payroll tax purposes. The statutory label is deemed wages, and it is created by the relevant contract provisions (for example Payroll Tax Act 2007 (NSW) s 32 and its equivalents in the other states and territories).

The deemed wage is the amount the practice remits to the doctor: the gross billings it collects, less the service fee it retains. It is not the gross billings, and it is not the doctor's net drawings. A practice that retains a 30% service fee therefore has a deemed wage of 70% of the billings it collects on the doctor's behalf.

Two consequences follow. First, the deemed wages are added to the practice's employed staff wages and tested against the same threshold, so a practice that was never close to the threshold can be pushed over it by its doctors alone. Second, because the figure is built from what the practice collects and remits, the arrangement that produces it is the one where the practice controls the billing, not the one where the doctor does.

The decision that settled the position

The leading authority is Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2023] NSWCA 40. The case concerned medical practitioners engaged under a service facility arrangement of exactly the kind described above: the practice billed in its own name, collected the funds, retained a service fee and remitted the balance. The court upheld the treatment of the remitted amounts as deemed wages.

The practical significance is that the arrangement is now well understood by the revenue offices, which hold several years of practice billing data to compare against. An arrangement that has been running unchanged for years is therefore a live retrospective exposure, not a theoretical one.

Why an ABN does not change the answer

The most common misconception is that a doctor's ABN, or the fact that the doctor invoices the practice, takes the arrangement outside payroll tax. It does not. The relevant contract provisions operate on the substance of the arrangement, and where the practice bills in its own name and remits the balance to the doctor, the ABN changes nothing.

The ABN does matter for other obligations. It affects withholding (the 49% no-ABN rate does not apply where an ABN is quoted) and superannuation, where a contractor engaged under a contract wholly or principally for their personal labour is treated as an employee regardless of the ABN. But for payroll tax on a service arrangement, the ABN is not the test.

The branch that avoids it: direct billing

There is an arrangement that does not produce deemed wages. Where the doctor bills their own patients and Medicare in their own right, receives those funds directly, and separately pays the practice a facility or service fee, the practice is not paying the doctor. On that structure there is generally no relevant contract wage for the practice.

The distinction is not the paperwork; it is who controls the billing and banking. A nominal direct-billing arrangement where the practice still collects the funds and remits the balance has been found to be a payment by the practice, however the invoices are addressed. The question to ask is where the money lands first, and who decides when it moves.

The relief is for GPs, and only for GPs

Every medical-specific payroll tax relief introduced between 2024 and 2026 is scoped to general practitioners and GP registrars. Nothing in those provisions extends to dentists, physiotherapists, psychologists, non-GP medical specialists or other allied health practitioners. For those cohorts the relevant contract provisions apply in full, with no relief available in any jurisdiction.

That has a direct consequence for a mixed clinical team. A practice that has confirmed its GP position, or that qualifies for a GP exemption, cannot assume the same treatment covers its contractor dentist or psychologist. The GP relief softens the liability on GP payments only; the non-GP payments remain exposed and are added to the same wage base for the threshold test.

Where your practitioners are not GPs, the non-GP practitioner guidance sets out the framework that applies to dentists, physiotherapists, psychologists, non-GP specialists and allied health, with no bulk-billing relief available. For the GP position across all eight jurisdictions, see GP payroll tax relief across Australia.

The answer depends on the state

The rules are administered state by state, and the same service arrangement can produce a different answer in different jurisdictions. Five jurisdictions provide relief for GPs, in different legal forms and on different conditions. Queensland exempts GP wages outright, with no bulk-billing condition. Victoria, South Australia and the ACT exempt the bulk-billed proportion of GP payments. New South Wales gives a rebate rather than an exemption, available only where at least 80% of GP services are bulk billed in metropolitan Sydney, or 70% elsewhere.

Three jurisdictions have no medical-specific relief at all: Tasmania, Western Australia and the Northern Territory. Western Australia is different again, because it does not apply the relevant contract provisions to medical practices. Assessment there proceeds on the common-law totality of the relationship, so the deemed-wages analysis above does not simply carry across the border.

Because the position is jurisdiction-specific, model it per state rather than assuming one answer for a practice that operates in more than one:

What to do next

The medical practice worksheet walks through the deemed-wages tests step by step for a specific arrangement, and the multi-state payroll tax calculator models the liability on the figures you enter, with the contractor-practitioner rules and the medical relief provisions built in. Both are estimation tools. Where a material amount turns on the characterisation of an arrangement, confirm the position with a registered tax agent and, where the question is contested, with the administering revenue office.