TRANSCRIPT

In this video, I’m going to show you how to avoid unexpected payroll tax bills in your medical practice — and what the Thomas and Naaz court case means for you if you work with contractors. This one decision has completely changed how tax authorities view health-care practices. And if you don’t understand the new rules, it could cost you tens of thousands of dollars in payroll tax.

Hi, I’m Chris Tolevsky from Tolevsky Partners — a specialist medical accountant. For 35 years, I’ve helped doctors and dentists legally pay less tax, build smarter practices, and create lasting wealth. If you’ve been worried about payroll tax in your medical practice, you’re in the right place, because in this video we’ll cover three key things: first, what the Thomas and Naaz decision actually said; second, why it’s hitting so many medical practices; and third, what you can do right now to stay compliant and save thousands.

Make sure you stick around to the end — because I’ll share how you can get a complimentary consultation to review your service agreements and see whether you’re at risk, and what to do about it. Alright, let’s get into it.

What Happened in the Thomas and Naaz Case

Thomas and Naaz Pty Ltd ran several medical centres in Sydney. The doctors working there weren’t employees — they were contractors. Here’s how it worked: patients paid the clinic, the clinic took about 30% as an admin fee, and then passed the rest on to the doctor. Pretty standard setup, right? Medical and dental practices all over Australia have been doing it this way for years.

But then the NSW Chief Commissioner of State Revenue said, “Hold on. These doctors are actually working for the medical centre,” and hit them with a payroll tax bill of over $700,000 covering about five years. The court agreed. Why? Because in reality, patients paid the clinic — not the doctors. The clinic controlled the money, and the doctors were part of the clinic’s business, using its brand, systems, and rules. So even though the contract said “independent contractor,” the court said, “Nope. This looks like employment for payroll tax purposes.”

What About Super and Leave Entitlements?

Good question. The Thomas and Naaz case focused only on payroll tax — not super or leave. Those are governed by separate laws. But here’s something important: if a contract is mainly for labour and the practitioner can’t delegate their work to someone else, then theoretically superannuation obligations could apply. So even though the case didn’t deal with super or leave, the way your contracts are structured can still have big consequences in those areas too.

So Who Pays Payroll Tax?

Here’s the deal — employers in Australia must pay payroll tax when their total taxable wages across Australia go over a certain threshold. That includes salaries and wages, directors’ fees, leave, fringe benefits, and super. In New South Wales, the threshold is $1.2 million per year. In Victoria, it’s $1 million. Payroll tax is only charged on the amount above the threshold — at a rate of 5.45% in NSW and 4.85% in Victoria.

Now, if you were to exclude payments to contractors, your admin wages alone probably wouldn’t exceed that threshold. But here’s where it gets tricky: if you’re paying contractors, the payments you make to them — after deducting your service fee — can still be counted as wages for payroll tax purposes. Even if they’re not technically your employees, those payments can still get caught under the rules.

But don’t panic — this doesn’t mean every clinic is automatically liable. What matters is how the payments flow, who controls the patient relationship, and whether your agreements reflect what happens in practice. And that’s where many clinics trip up — their contracts say one thing, but their day-to-day operations tell a different story.

How to Avoid Payroll Tax Traps in Your Practice

Alright — let’s talk about how to avoid those payroll tax traps. To stay on the right side of things, you need to understand what the State Revenue Office is really looking for when they decide whether you’re liable for payroll tax on contractor payments. It’s not just about what’s written in your agreements — it’s also about what actually happens day-to-day in your business.

Here’s what to check:

Step 1 — The Flow of Funds
You need to look closely at how patient fees are handled. If your clinic collects all the money and then pays contractors, that setup might expose you to payroll tax. Ideally, contractors should collect their own income directly from patients and then pay you a service fee for using your facilities. That small change in cash flow can make a huge difference.

Step 2 — Control
If you’re setting the contractor’s hours, deciding their fees, or controlling how they work, it will look like an employment agreement. True contractors should set their own hours, manage their own patients, carry their own insurance, and use their own ABN on invoices. The more independent they are — the safer you are.

Step 3 — Branding and Business Identity
If all your signage, website content, and receipts are in your clinic’s name, it looks like one integrated business. Make it clear that each contractor is an independent practitioner, not an employee. Avoid referring to them as “your team.” List them as Independent Clinicians instead. Even small branding changes can strengthen your position.

Step 4 — Retention of Patient Records
If a practitioner leaves the clinic, they should still be able to access their patient records. Your clinic can keep a copy too. This shows that patients belong to the practitioner’s practice — not the medical centre.

Step 5 — Restraint of Trade
Contractors should not be restricted from working elsewhere or opening their own clinic. Restraint clauses are a red flag. Always check for these — they can come back to bite you.

Step 6 — Written Service Agreement
Every contractor must have a written service agreement that reflects what actually happens in practice — and it must be signed. This document will be requested in an audit, so make sure it’s airtight.

Step 7 — Get Professional Advice
Payroll tax is complicated. A quick review by someone who understands medical practices can literally save you tens of thousands of dollars and a lot of stress.

Complimentary Consultation

As promised — if you’re not sure whether your structure might expose you to payroll tax, I’m offering a complimentary consultation valued at $1,295. In that session, we’ll review your service agreements, identify your risks, and show you how to fix them before the SRO comes knocking.

As a bonus, we’ll also review your last two years of tax returns to make sure your practice is in the right structure and that you’re legally minimising your tax. You’d be surprised how many doctors operate out of the wrong structure and pay more tax than they need to.

At the end of the consultation, you’ll receive a clear written summary of our advice. You can implement the changes yourself or work with us — whichever you prefer.

So if you want peace of mind, head over to tolevskypartners.com.au and book your complimentary consultation today. You’ll avoid a nasty payroll tax bill and make sure you’re legally minimising your income tax so you can keep more money in your pocket.

Until next time —

Chris Tolevsky