If you run or manage a medical centre, there's one issue that might be flying under your radar but could have significant financial consequences: payroll tax on contractor doctors. 

Across Australia, many medical practices are now facing large, unexpected tax bills. State revenue offices are increasing their focus on payroll tax obligations in medical centres, particularly where doctors are engaged as independent contractors. 

The question is no longer if this will impact your practice, but when.

Let’s take a closer look at the legal changes, the growing risks for medical practices, and how you can respond with clarity and confidence.

Why Medical Clinics Are Being Targeted 

Medical clinics often engage doctors under service agreements. These agreements usually state that doctors are contractors, not employees, which traditionally meant no superannuation, leave entitlements or payroll tax. 

However, recent legal rulings are challenging this model. 

In several key cases, including Optical Superstore Pty Ltd v Commissioner of State Revenue, courts have determined that payments made to doctors may still attract payroll tax, even if the doctors are considered independent contractors. 

This has significant implications for how state revenue offices interpret these relationships. 

The core issue lies in what constitutes an employment-like relationship, not just the terms of the contract, but how the arrangement works in practice. 

Common Risk Factors for Medical Clinics 

If you’re a clinic owner or practice manager, it’s essential to understand the factors that could put you in the payroll tax spotlight. 

State revenue offices are looking beyond labels like “contractor” or “service agreement” - they’re assessing how the relationship operates in real life.

Here are the key risk indicators they’re watching for:

• Patients Pay the Clinic, Not the Doctor 
  Even if your doctors are contractors on paper, payroll tax may apply if the clinic collects consultation fees and then passes on a portion to the doctor. 

  This creates the appearance of an employer paying a worker, rather than a doctor billing patients directly.

  Example: If your reception staff processes payments under the clinic’s name and doctors receive a percentage cut, this could raise red flags.

• The Clinic Controls Bookings or Hours 
  

  If your practice sets rosters, allocates shifts, or manages appointment calendars, it suggests a level of control typical of an employer-employee relationship, even if the doctor is called a contractor.

  Risk increases if doctors are required to work certain days or maintain set hours.

• Shared Staff or Equipment 
  

  Providing access to nurses, receptionists, consulting rooms, or clinical tools may imply that the doctor is integrated into the clinic’s operations, not functioning as an independent entity.

  Especially if these resources are provided without a clear, commercial service fee agreement.
  

• Long-Term Exclusive relationships 
  

  A contractor who works only at your clinic, for extended periods, and relies solely on your business for income may be viewed as economically dependent - a hallmark of an employment relationship.

  This is particularly risky if the doctor doesn’t contract with other clinics or advertise independently.

  In New South Wales, for example, the Commissioner of State Revenue has been reassessing medical centres and issuing retrospective payroll tax assessments, with some practices facing liabilities in the hundreds of thousands. 

  
  

  Other states such as Victoria, Queensland and South Australia are following closely, particularly as state governments look for ways to increase revenue. 

  
  

  If you're unsure how these rulings apply to your clinic’s structure, speaking with a business accounting professional can help you interpret the risks before the ATO or state authorities do.

What Medical Practices Should Do Now 

The risk is real, but manageable, if you act early. With the spotlight firmly on medical clinics, now is the time to get proactive. 

Here are the steps your practice should be taking:

1. Review Your Contractor Agreements

Don’t assume your current service agreements are compliant just because they were drawn up by a lawyer years ago. Legal interpretations around payroll tax are shifting, and so should your documentation.

• Ensure agreements clearly reflect an independent contractor relationship (not an employee substitute).
  
  
• Avoid clauses that give the clinic excessive control over the doctor’s day-to-day activities.
  
  
• Check that billing arrangements, termination clauses, and performance expectations support a contractor model.
  
  
• Have agreements reviewed by a lawyer familiar with payroll tax rulings in your state.

Tip: An outdated or boilerplate contract may be more of a liability than an asset.

2. Assess Your Operating Model

Beyond paperwork, revenue offices are closely examining how the working relationship functions in real life. It’s not just about what’s on paper - it’s about what actually happens day to day.

• Who owns the patient relationship? If the clinic controls bookings and patient billing, this may indicate an employment-like arrangement.
  
  
• Who sets the schedule? If doctors are rostered like employees, it may attract scrutiny.
  
  
• Who supplies the staff and equipment? If the clinic provides receptionists, nurses, or rooms, it could be seen as operating more like an employer.
  
  
• How exclusive is the relationship? Long-term, full-time contractors who work only at one practice may trigger a payroll tax liability.

Action step: Conduct an internal audit of your practice's workflows, doctor arrangements, and patient processes to identify risk areas.

3. Seek Professional Advice

This isn’t an issue you want to tackle alone. The laws around payroll tax and contractor relationships are complex and vary across state lines.

• Speak to your business accountant about your potential exposure.
  
  
• Consult a legal advisor who understands both commercial and employment law in the medical context.
  
  
• Request a risk assessment or compliance review to identify gaps before the revenue office does.

Pro tip: Don’t wait until you receive an audit notice. By then, it's often too late to make preventative changes.

4. Stay Up to Date with State-Based Changes

Each Australian state and territory is taking its own approach to payroll tax on contractor doctors, and the rules continue to evolve.

• New South Wales has already begun issuing retrospective assessments.
  
  
• Queensland and South Australia have offered temporary amnesties for practices willing to come forward and restructure.
  
  
• Victoria is stepping up compliance activity following court precedents.

Stay informed about developments in your state and be ready to act quickly when relief options or legislative changes are announced.

Recommendation: Subscribe to updates from your state revenue office and speak to advisors regularly (a six-month-old interpretation may already be out of date).

By taking these steps now, medical practices can reduce the risk of a costly payroll tax reassessment and ensure they are operating with confidence and compliance.

Secure Your Clinic’s Future Today

Navigating payroll tax obligations as a medical centre is becoming increasingly complex.

With state revenue offices actively reassessing contractor arrangements, relying on outdated assumptions could leave your clinic vulnerable, not just to financial penalties, but also to reputational damage.

The good news? Taking a proactive approach now can safeguard your practice, ensure compliance, and give you peace of mind. 

Whether you're reviewing existing service agreements or rethinking your day-to-day operating model, expert guidance can help you avoid costly missteps.

At Rubiix Business Accountants, we specialise in helping medical clinics manage payroll tax risk with clear, practical advice. You’ll walk away with a sharper understanding of your obligations and a plan to move forward with confidence.

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Disclaimer: The information in this article is general in nature and does not constitute legal or medical advice. Please consult a qualified adviser for personalised guidance.