Medical practices and locum doctors – The Iceman cometh

Medical practices with locum doctors should be preparing for a review of their arrangements by State Revenue authorities for possible payroll tax liabilities.

A 2022 NSW Civil and Administrative Tribunal (NCAT) case dealing with a medical practice group held that contracts with their locum doctors fell into the extended definition of ‘wages’ contained under the NSW payroll tax legislation. This was because of the ‘relevant contract’ provisions. The ‘relevant contract’ provisions of the payroll tax legislation extend the definition of ‘wages’ so as to include arrangements where the payment is (with some exceptions) principally for the services of the person – even where there is not a traditional employer – employee relationship in place.

As state payroll tax legislation across the country is virtually identical, State Revenue Authorities are using this NSW NCAT case (and a 2019 Victorian Supreme Court case dealing with locum optometrist arrangements) to review such contracts for possible payroll tax liabilities.

The NSW NCAT medical practice case

The facts of the case in question are remarkably common for medical and health businesses.

The taxpayer ran 3 separate medical practices.

The taxpayer engaged a number of locums across all 3 medical practices. The locum doctors treated patients at one of the taxpayer’s 3 locations. Per a written contract with the taxpayer, the locum doctors paid a fee to the medical practice for the use of their rooms and for administrative support. This fee was 30% of what the locum doctors billed to their patients. The remaining 70% was the fee paid to the locum doctors.

From a payroll tax perspective, the proposition was that the locum doctors were independent contractors and therefore, there was no payroll tax to be paid on their 70% fee.

The NSW VCAT case held that, in fact, the arrangements with the locum doctors were ‘relevant contracts’ for payroll tax purposes and therefore the 70% fee to the locum doctors was fully liable to payroll tax.

Every state payroll tax act contains a ‘relevant contract’ provision so this is why State Revenue Authorities are gearing up for reviews of such arrangements in the medical sector. We understand that armed with the 2019 Victorian Supreme Court case dealing with locum optometrists and the NSW NCAT case dealing with locum doctors, they believe they are in a strong position to challenge such arrangements where no payroll tax has been paid.

Where to from here for medical practices?

The starting point is of course for medical practices to carefully review their contractual arrangements with their locum doctors.  In particular, contracts with locum doctors should be carefully reviewed with this case in mind.

In some instances, it may be there is sufficient differentiation from the arrangements in the NSW NCAT case that it is unlikely that there will be a liability for payroll tax. In such cases, we suggest the relevant medical practices be prepared to document why their arrangements are different from the NSW NCAT case. This analysis should document why their locum doctors are genuinely independent contractors from a payroll tax perspective.

There may be a lesser number of cases that are virtually identical to the arrangements in the NSW NCAT case. In such cases, we suggest medical practices should seek professional advice regarding such contracts. One of the matters for discussion with a professional adviser in such an instance will be to consider the merits of a voluntary disclosure to their particular State Revenue Authority. A voluntary disclosure will usually eliminate or significantly lessen penalties on any unpaid payroll tax.

Should medical practices have any questions regarding this article, we suggest they contact their usual Cornwalls lawyer to discuss the next steps.


If you have any questions about this article or would like us to review any of your trust arrangements, please get in touch with the author or any member of our Tax team.


This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.

Key Contact

Dennis Tomaras

Partner, Melbourne