Tax registrations for healthcare professionals
February 18, 2020
When you’re setting up your business in the medical industry, there are various registrations to consider and put in place regardless of your business structure.
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 avoid unnecessary exposure.
Here are various tax registrations you may need to have in place:
Tax File Number (TFN)
A Tax File Number (TFN) is a personal reference number in the tax and superannuation systems, something everyone will be familiar with.
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 the company or trust.
Australian Business Number (ABN)
An Australian Business Number (ABN) is a unique 11-digit number that identifies your business to the government and community.
You will need to apply for an ABN if you are a business, regardless of your business structure choice, or plan to issue tax invoices with GST.
To be able to register for an ABN, you will need to be carrying on an enterprise. An ABN doesn’t replace your TFN, but it is used for various tax and other business purposes.
Goods and Services Tax (GST)
Goods and Services Tax (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 turnover of $75,000 per year or more. This includes GST-free sales but excludes input taxed sales.
GST-free sales don’t attract GST in the price of the product or service, however 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, as well as medicines, medical aids and appliances, are GST-free, most health professionals earning more than $75,000 in private practice will have to register for GST as their services will be included in the GST turnover calculation.
Even if your GST turnover is less than $75,000 and you are not required to be registered, it is still often beneficial for medical/health care professionals to register to claim back the GST credits on business expense purchases.
Registering for GST can be particularly beneficial if you have entered into a service arrangement. If you are operating as a consultant in someone else’s practice, you are able to claim the GST credits on the service fee that you may be charged by either a related service entity or an unrelated entity.
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, including having no apprentices or paying less than $7,500 in annual wages.
You don’t need to register for workers compensation insurance if you operate as a sole trader, partnership or trust and 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.
Find more details about workers compensation insurance at Safe Work Australia.
Businesses that use contractors instead of employees should note that contractors can sometimes be deemed as ‘workers’ for the purpose of workers compensation insurance.
This is particularly important in large medical practices that allow various health professionals to operate in their business as contractors for a service fee.
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 (e.g. do they work for various other people)?
It is important to consider the above queries to ensure you are adequately reporting and being covered by WorkSafe to avoid significant penalties.
The ATO has an online decision tool to help determine if someone is an 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.
While the payroll tax rates and thresholds vary between states and territories, it is $650,000 annually or $54,166 monthly in Victoria.
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’ 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 this SRO focus and provided valuable findings in terms of when a structure may run the risk of falling foul of payroll tax provisions.
The key findings were: 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 is important to health professionals as it appears to confirm that client income derived by professionals should not be subject to payroll tax. When setting up a practice arrangement, remember that an arrangement that sees the professional, which derives the fee personally and then pays a service entity a fee for running the practice, should not be subject to payroll tax on the client fees.
However, a wage is subject to payroll tax if the practice itself derives the fees and then pays the professional a wage. It is vital to engage an adviser who is familiar with the complexities that face the health industry to set up your structure correctly from the start.
While it’s 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 Victorian land you own, individually or jointly, as at December 31, is equal to or exceeds $250,000, or $25,000 for trusts. This will be an important consideration if you hold the property that your practice operates out of.
While holding properties in a trust structure has many benefits, you should also consider the land tax-related surcharge rates for trusts.
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 a 0.375% surcharge rate plus the general rate.
This surcharge rate begins to phase out once the property land value exceeds $1,800,000, but the surcharge rate becomes the same as the general rate once the value reaches $3,000,000.
Other registrations for employers
If your chosen structure for your medical business 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, including:
- 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 via your Business Activity Statement (BAS).
- Super guarantee – employers must make superannuation contributions of at least the current superannuation guarantee amount, which is 9.5% at the time of publication. The ATO takes a very strict stance on employers remitting superannuation for their employees. Employers who fail to make payments or make late payments 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 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.
Get the right advice
Starting a medical business is a time-consuming process, with tax registrations and many other factors to consider before you even open the doors.
While a TFN and ABN may be relatively straightforward, other areas such as GST and payroll tax can have significantly different outcomes depending on how you approach your business set-up.
If you need expert advice in setting up your business structure, let the trusted team at LDB Group guide you through the process with first-hand experience in the medical and healthcare space.
For more information, call us on (03) 9875 2900 or fill out the form below.