Registrations for Health Professionals – a tax perspective
In our last two articles we have discussed the different types of structures available to professionals and the personal services income regime and the use of service entities . Regardless of the type of structure you choose, there are various registrations that will need to be put in place.
While some of these registrations are basic administrative type registrations, others can be considered as part of the structuring process to help with tax planning and to ensure you are setting up your business to avoid unnecessary exposure.
We will now consider the various tax registrations you may need to have in place.
Tax File Number (TFN)
Everyone will be familiar with the TFN registration. A TFN is a personal reference number in the tax and superannuation systems.
If you operate as a sole trader your personal TFN will be the same as the one you use for your business income.
If you set up a different structure such as a company, discretionary trust or unit trust, you will need to apply for a separate TFN for this company or trust.
Australian Business Number (ABN)
An ABN is a unique 11 digit number that identifies your business to the government and community.
An ABN doesn’t replace your TFN, but it is used for various tax and other business purposes. To be able to register for an ABN you will need to be carrying on an enterprise.
If you are planning on issuing tax invoices with GST (see below) you will require an ABN.
Regardless of your structure choice, if you are in business (even as a sole trader) you will need to apply for an ABN. Many of you might have been asked if you have an ABN by pharmaceutical and diabetes equipment companies in order to assist honorarium payments for your time in providing presentations or being involved on advisory boards.
Goods and Services Tax (GST)
GST is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia.
You must register for GST if your business has a GST turnover of $75,000 per year or more. This includes GST-free sales but excludes input taxed sales.
Input taxed sales are sales of goods and services that don’t include GST in the price. You also cannot claim GST credits for the GST included in the price of your inputs (or expense incurred to make the input taxed sale). The most common example of input taxed sales is the renting out of residential property. Rent of residential property does not have GST included in the price and while landlords may incur GST on expenses in relation to supplying the property, such as agent fees repairs and maintenance etc., they are unable to claim these GST credits.
GST-free sales as their name indicates, don’t attract GST in the price of the product or service however unlike input taxed sales, you can still claim the GST included in the price of purchases you use to make your GST-free sales.
While most medical, health and care services, medical aids and appliances and medicines are GST-free, in most cases health professionals earning more than $75,000 in private practice will still be required to be registered for GST as their services will be included in the GST turnover calculation. Even if you are not required to be registered (as your GST turnover is less than $75,000) it is still often beneficial for medical/health care professionals to register as you are able to claim back the GST credits on business expense purchases.
This can be particularly beneficial if you have entered into a service arrangement as you are able to claim the GST credits on the service fee you may be charged by either a related service entity or an unrelated entity if you are operating as a consultant in someone else’s practice.
Workers Compensation Insurance
If you employ workers in your business you must register for workers compensation insurance to cover work related injuries and illnesses. There are some exemptions, for example if you have no apprentices or pay, less than $7,500 in annual wages.
If you operate as a sole trader, partnership or trust you don’t need to register for workers compensation insurance if you don’t employ any other people as workers. If you operate as a company and you do all the contract work for your company’s one and only business client you also don’t need to register. However, if your company employs workers, including yourself, you will need to take out an insurance policy.
More details can be found at Safe Work Australia https://www.safeworkaustralia.gov.au/
It is important to note that while some businesses may use contractors instead of employees, especially large medical practices who allow various health professionals to operate in their rooms as contractors for a service fee, contractors can sometimes be deemed as “workers” for the purpose of workers compensation insurance.
This will vary depending on circumstances but the key things to consider would be:
- Is the contractor performing work under your direction?
- Do they have set hours determined by you?
- Are they able to sub-contract their work?
- Are they paid per activity, or on an hourly rate?
- Do they provide the necessary equipment to complete their role?
- How much of their income is earned from your business (i.e. do they work for various other people)?
It will be important to consider the above queries to ensure you are adequately reporting and being covered by WorkSafe to avoid the significant penalties which may apply. The Australian Taxation Office (ATO) has an online decision tool to help in determining if someone is an employee or contractor https://www.ato.gov.au/calculators-and-tools/employee-or-contractor/
Payroll tax is a self-assessed, general purpose state and territory tax assessed on wages paid or payable by an employer to its employees, when the total wage bill of an employer (or group of employers) exceeds a threshold amount.
The payroll tax rates and thresholds vary between states and territories, in Victoria it is $650,000 annually or $54,166 monthly.
If you operate or manage a business which engages health professionals, you will need to consider payroll tax. In order to fully explore the issue you will need to consider your legal agreement with the health professionals as well as what happens on a day-to-day basis with the business’s clients in terms of collection of fees, payment of business costs and payment to the health professional themselves.
Lately the state revenue office (SRO) has been focusing heavily on investigating medical and other health related services. Their focus has included reviewing the structuring arrangements to determine whether these could include deemed “wages” paid to a medical professional and should be subject to payroll tax.
The recent case of The Optical Superstore highlighted the focus of the SRO and also provided valuable findings in terms of when a structure may run the risk of falling foul of the payroll tax provisions.
The key findings of the above case, which should be considered by all practice owners, was that in order for payments to be deemed as wages under the Payroll Tax Act, the money had to be paid or payable by an employer during a financial year for or in relation to the performance of work relating to a relevant contract. That is, payroll tax is not triggered on amounts derived from providing services to third parties.
The decision was important to health professionals as it appears to confirm that client income derived by professionals should not be subject to payroll tax. Therefore when setting up a practice arrangement, it is important to note that an arrangement that sees the professional derive the fee personally and then pay a service entity a fee for running the practice, will mean the professional should not be subject to payroll tax on the client fees. However if it is the practice itself which derives the fees and then pays the professionals a wage, this wage would be subject to payroll tax. This is another example of how setting up your structure correctly at the start is vital, and that it is important to engage an advisor who is familiar with the complexities that face the health industry.
While not a registration as such, land tax is another cost that should be considered when determining your structure.
You pay land tax if the total taxable value of all the land you own, individually or jointly, as at 31 December, is equal to or exceeds the relevant thresholds in each state. In Victoria for example the threshold is $250,000 ($25,000 for trusts) this will be an important consideration if you hold the property your practice operates out of.
It should also be noted while there are many benefits of holding properties in a trust structure (as discussed in other articles) these benefits should be weighed up against the fact that there are surcharge rates for trusts when it comes to land tax.
In Victoria for example, these rates include a lower tax free threshold of $25,000 vs $250,000. For holdings valued between $25,000 and $1,800,000 the land tax rate for trusts is the surcharge rate of 0.375% plus the general rate.
This surcharge rate begins to phase out once the property land value exceeds $1,800,000 and once the value reaches $3,000,000 the surcharge rate is the same as the general rate.
Other registrations for employers
If your chosen structure involves employing people, as well as the above workers compensation insurance, land tax and payroll tax considerations, there are a few other items that should be noted:
- Pay as you go withholding (PAYG) – as an employer you must help your payees meet their end-of-year tax liabilities. This is done by withholding a set amount from their wages and then remitting this to the ATO each month or quarter (depending on your turnover) via your BAS.
- Super Guarantee– employers must make superannuation contributions of at least the current superannuation guarantee amount which is 9.5% at the time of this article being published. The ATO take a very strict stance on employers remitting superannuation for their employees. Employers who fail to make payments, or make payments late face significant scrutiny and penalties from the ATO.
- Fringe Benefits Tax (FBT) – FBT is a tax payable by employers for benefits paid to an employee (or their associate) in place of salary or wages. This can include things such as motor vehicles, car parking, fuel cards, rent or accommodation as well as lunches, dinners and other entertainment type activities. There are various ways to calculate FBT liabilities and some items may be exempt if handled correctly.
More information can be found on the ATO website https://www.ato.gov.au/business/employee-or-contractor/your-tax-and-super-obligations/
Hopefully the above has been helpful in identifying all the registrations you may need to consider when setting up your business. While things such as obtaining a TFN and ABN may be relatively straight forward, others such as GST and payroll tax can have significantly different outcomes depending on how you approach your business set up. As always, seek professional advice to help guide you through these considerations.
Please note the above information in general in nature only. When looking to apply this information to your individual circumstances we recommend talking to a professional advisor who can assist.