Third time unlucky: Optical Superstores held liable for payroll tax on patient fees transferred to optometrists under occupancy agreements

In the most recent chapter of the battle between the Victorian State Revenue Office and The Optical Superstore Pty Ltd, the Commissioner of State Revenue has claimed victory, with the Court of Appeal finding on 12 September 2019 that transfers of funds made to optometrists by Optical Superstore were subject to payroll tax under Victorian law.

In this case, Optical Superstore entered into arrangements with optometrists working in its stores, either directly or via the optometrists’ companies or trusts, under which it was agreed that the optometrists’ entities would occupy consulting rooms at Optical Superstore’s premises, and perform eye tests for members of the public at the stores.

Under the terms of agreements between the parties, bulk billed Medicare fees and other fees charged by the optometrists to patients were collected by Optical Superstore, held on trust by it, and then partly reimbursed to the optometrists’ entities, after deduction by Optical Superstore of occupancy fees.  The “reimbursement amounts” actually received by the optometrists’ entities were calculated by reference to hourly rates.

The battle started in the Victorian Civil and Administrative Tribunal, where Optical Superstore initially succeeded in challenging the SRO’s assessment of payroll tax against it.  In February 2018, VCAT held that that monies transferred to entities related to optometrists working in the stores were not “wages” within the extended definitions of this term under the Payroll Tax Act and therefore not subject to payroll tax, even though the agreements between Optical Superstore and the optometrists’ entities were “relevant contracts” and Optical Superstore was deemed to be the employer of the optometrists for payroll tax purposes.

A second round victory also went to Optical Superstore in the Supreme Court, where Croft J agreed that as the funds received by Optical Superstore from patients were always held on trust for, and beneficially owned by, the optometrists’ entities, transfers of those funds to the optometrists’ entities were not “payments” for the purposes of the Payroll Tax Act.   

In the most recent third round decision, this finding was overturned, with the Court of Appeal unanimously finding that a “payment” is made when monies beneficially owned by a beneficiary are provided to the beneficiary by a trustee. 

As the funds transferred to the optometrists’ entities were held to be payments made for or in relation to the performance of work by the optometrists in providing services to Optical Superstore and patients under “relevant contracts”, the amounts transferred were taken to be “wages” under the Payroll Tax Act, with the effect that Optical Superstore was liable for payroll tax.

With the most recent finding in this case comes an increased warning for operators of medical and allied health practices, many of whom who have structured their affairs in a similar way to Optical Superstore, or through the engagement of practitioners as “independent contractors” in the belief that monies received by medical and allied health practitioners under these types of arrangements would not attract payroll tax.   

As flagged in our series of articles Contractors vs Employee - Shifting Sands for Medical and Allied Health Practices increased scrutiny by regulators in this space is one of many reasons for medical and allied health practices to pause, review and seek expert advice about past and future structuring arrangements, to make sure that arrangements being used for the engagement and payment of practitioners are compliant with laws as they are being applied today.

For more information and resources please see our Medical and Allied Health page or contact:

Sonia McCabe
Senior Associate
T 03 5226 8558
E: smccabe@ha.legal

Rod Payne
Principal
T: 03 5226 8541
E: rpayne@ha.legal

Paul Gray
Principal Lawyer
T: 03 5225 5231
E: pgray@ha.legal