Warrnambool and south-west GP clinics could fold under tax move

The State Revenue Office released a ruling in late August that said medical practitioners like GPs were operating as "common law employees" of their medical clinics, which meant the medical clinics were liable to pay payroll tax for them.

Medical practitioners like GPs are technically sole traders working with their own licence and ABN, but when they work full time at one clinic they are operating almost identically to a traditional employee.

The tax laws that make medical centres liable for payroll tax on their practitioners have been around for decades and never been applied but recent High Court and Australian Tax Office rulings have given state governments the green light to start sending out tax bills.

In Victoria some medical practices have already started receiving bills, with one practice owner suddenly finding himself liable for $800,000 in taxes.

A Warrnambool GP and practice owner, who asked not to be named because he didn't want "a target on my back", said if the laws were applied across the board it would be catastrophic for the sector.

"Basically every practice audited would become non-viable overnight," he said.

The GP said there were two particularly concerning aspects to the way the laws were playing out in Victoria. One was the fact the revenue office could apply the laws retrospectively, going back five years. The other was they could send out the bill immediately, demanding payment within 21 days.

"The fact they can be audited for five years in arrears means some practices face massive tax bills," he said.

"Then they're enforcing it all of a sudden, without giving the practices any chance to restructure their business.

"If practices get slugged for five per cent over five years, they're gone."

Many of the aspects of a medical practice that allow it to run smoothly as a business are the things that would have to change if practice owners want to avoid huge tax bills. The medical clinic handles the administrative work for its GPs, and takes payment from patients before disbursing the money back out to the practitioners.

"Cashflow would probably be the biggest thing. Each individual practitioner would have to have their own payment system and they would then have to pay a certain amount back to the centre," the Warrnambool GP said.

"It would make everything more time consuming for the practice and the practitioners. You would have to take on an extra staff member just to deal with the additional admin.

"People think running a practice is lucrative, but most of them run on profit margins of a few per cent. This would just be another disincentive to starting or maintaining a practice."

That might not be such a problem if the industry wasn't already under pressure but as The Standard has reported, general practice is on a knife's edge after a decade of under-investment.

Many regional areas including the south-west are in a chronic battle to find GPs with an older generation facing retirement without being able to find young doctors to replace them.

"It's already so difficult to bring doctors to country areas, then you've got the fact general practice graduate numbers have declined. This is just another huge disincentive that will make the system more difficult to maintain," the Warrnambool GP said.

"I'm not actually against the ruling, it's pretty clear the laws apply to us. Where I think it's unreasonable is the retroactive application and enforcing it suddenly after decades of not applying it."

South West Coast MP Roma Britnell said she had spoken to dozens of GPs about the issue, tying the government's strict enforcement of the laws as a reaction to the dire condition of the state budget.

"Local doctors who I have spoken to have called this move the 'final straw", said Ms Britnell.

"At a time when regional Victoria is already struggling to recruit GPs and costs are skyrocketing for business and consumers alike, GPs tell me that Labor's health tax will add considerable out of pocket costs for patients, see an end to bulk billing, and likely see local GP clinics close."

Governments in some other states are discussing a two-year "grace period" to allow medical practices to re-structure but the Victorian government so far stuck with an immediate, retrospective approach.

A poll of practices by the Royal Australian College of General Practitioners found 3 per cent of practices could absorb the extra costs, even without paying five years of back taxes. Some would have to close, with the vast majority surviving, but having to raise their fees.