Medical and allied health practices – your tax obligations

This article forms part of the series “Contractors – Shifting Sands for Medical and Allied Health Practices”

The tax obligations on a practice in relation to an employment relationship are often perceived as being significantly more costly (and restrictive) compared to simply engaging a practitioner as an independent contractor. However tread carefully when making this decision, as getting your characterisation of a worker wrong can be even more costly and you may find yourself on the wrong side of the law.

Whether an individual is considered by law to be an employee or a contractor has significant tax implications. If the individual is an employee, you are clearly (amongst other things) required to:

• withhold tax (PAYG withholding) and report the amount withheld to the ATO;

• pay superannuation; and

• include that employee in payroll tax calculations; and

• report and pay fringe benefits tax (if applicable).

These obligations do not typically apply to a true independent contractor relationship, however recent approaches of State and Federal Taxation authorities has been to seek to extend the reach of liability for employers to find that many individuals engaged as contractors may in fact trigger a liability under one or all of the items above.

Where a practice has incorrectly categorised an employee as a contractor, it is potentially left with a significant taxation obligation, and this will apply for the entire period of engagement of the worker, not just from when an employment relationship is alleged.

Next steps

Consider your current arrangements and review your practice structure. We invite you to contact us with any questions.

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

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

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

Harriet Burton
Associate
T: 03 5225 5215
E: hburton@ha.legal