Reviewed 5 September 2026. Rates, thresholds, amnesties and exemptions are stated for the years indicated and change frequently - confirm the current position with the relevant revenue authority or obtain advice before acting.
Disclaimer: General Information Only
This guide is general information only and is not a substitute for advice on your specific arrangement.
Quick answers
- Do Facilities Service Providers pay payroll tax on contractor doctors? Often the payments can be caught. Even a genuine independent contractor's payments can be caught by the State "relevant contract" provisions, so the arrangement and the service-fee flow should be structured with regard to those provisions; characterisation depends on the facts.
- What are the current rates and thresholds? For 2026-27, they vary by state (for example, NSW 5.45% on a $1.2 million threshold; VIC 4.85% on $1 million; QLD 4.75% on $1.3 million). The full table is below, with links to each revenue authority.
- Are there exemptions? Several states have GP-specific exemptions or rebates (Victoria, Queensland, the NSW contractor-GP rebate, the ACT and South Australia), but specialists and allied health are largely excluded. Eligibility is fact-specific.
- What is the risk of getting it wrong? Retrospective assessments plus penalties and interest, often spanning several years.
Introduction
Payroll tax obligations for medical practitioners have undergone significant transformation across Australia, with state revenue offices implementing new rules, relief programs, and compliance requirements that affect how Facilities Service Providers (FSPs providing Administrative Services to Australian Medical and Healthcare Practitioners) structure their workforce arrangements. The landscape has become particularly complex following court decisions and revenue office rulings that have expanded the definition of taxable wages to include payments to contractors in many circumstances.
For FSP owners and healthcare administrators, understanding these obligations is important, as retrospective assessments can reach hundreds of thousands of dollars. This guide examines payroll tax for medical practitioners across Australian jurisdictions. Characterisation of any particular arrangement depends on the contract, the conduct and the flow of funds, and on the relevant authority's assessment.
What is payroll tax and when does it apply to a medical practice?
What Triggers Payroll Tax Obligations?
Payroll tax is a state-based tax on wages paid by employers when their total Australian wages exceed specified thresholds. For medical practices, complexity arises in determining what constitutes "wages" and who qualifies as an "employee" for payroll tax purposes.
Note: Some industry commentators publish estimates of historical exposure in the hundreds of thousands of dollars per full-time equivalent GP where a multi-year assessment is issued. Those figures are not official revenue-authority amounts and should not be treated as a typical or guaranteed liability. Actual exposure depends on wages, grouping, exemptions and the assessment period.
What counts as "wages" for payroll tax?
Traditional employment relationships clearly attract payroll tax. However, recent interpretations have significantly broadened the scope to include:
- Payments to contractors under "relevant contract" provisions
- Service arrangements where practitioners provide services to the Facilities Service Provider
- Situations where practitioners serve patients in connection with the FSP's administrative services business
What are the payroll tax rates and thresholds in each state?
Current Payroll Tax Thresholds (2026-2027)
The rates and thresholds below are for 2026-27 and were re-verified against official revenue-authority pages on 5 September 2026.
Understanding each jurisdiction's threshold is important for compliance:
- 2026-27 tax-free threshold: $1,000,000
- 2026-27 rate: 4.85% (regional rate: 1.2125%)
- Deduction phases out between $3 million and $5 million of annual Australian wages
- Combined mental health and COVID-19 debt surcharges of 1% above $10 million and 2% above $100 million of Australian wages, applied to the Victorian share
- 2026-27 tax-free threshold: $1,500,000
- Variable rate from 0% to 4.95% between $1.5 million and $1.7 million; 4.95% above $1.7 million
- Maximum annual deduction entitlement $600,000 (subject to grouping and interstate apportionment)
- 2026-27 tax-free threshold: $1,300,000
- 2026-27 rate: 4.75% (4.95% where Australian taxable wages exceed $6.5 million)
- Mental health levy: additional 0.25% on Queensland taxable wages above the $10 million Australian-wages threshold, and a further 0.5% above $100 million
- Regional discount available
- 2026-27 tax-free threshold: $1,200,000
- 2026-27 rate: 5.45%
- 2026-27 tax-free threshold: $1,000,000, with a diminishing deduction until $7,500,000 of annual Australian wages
- 2026-27 rate: 5.5% (higher marginal rates may apply to very large Australia-wide wage bills)
- 2026-27 tax-free threshold: $1,250,000
- 2026-27 rate: 4.0% on wages between $1.25 million and $2 million; 6.1% above $2 million
- 2026-27 tax-free threshold: $1,750,000
- 2026-27 rates: 6.75% to $20 million; 6.85% to $50 million; 7.35% to $100 million; 7.85% to $150 million; 8.75% above $150 million of annual Australia-wide wages
- 2026-27 tax-free threshold: $2,500,000
- 2026-27 rate: 5.5%, increasing to 6.5% where annual Australia-wide wages are $100 million or more
Are contractor doctors caught by payroll tax?
The Fair Work "Whole of Relationship" Test (distinct from payroll tax)
From 26 August 2024, the Fair Work Act 2009 (Cth) section 15AA introduced a "whole of relationship" test for determining whether a worker is an employee or an independent contractor for Fair Work purposes. This is a Fair Work characterisation test. It is not the payroll tax test: payroll tax liability for medical practices turns on the State-based "relevant contract" provisions discussed below, not on the Fair Work test. The two regimes must be assessed separately.
Key features of the Fair Work test
- The real substance and practical reality of the relationship
- How the contract is performed in practice (not just written terms)
- The true nature of the working arrangement
- Changes in the relationship since commencement
Relevant Contract Provisions
Even if practitioners are genuine contractors, payroll tax may still apply under "relevant contract" provisions where, for example:
- 1The practitioner provides services to the Facilities Service Provider
- 2Services are provided to patients in connection with the FSP's administrative services
- 3The arrangement furthers the business of the FSP
- 4The FSP exercises control over service delivery
The statutory tests are in each State's Payroll Tax Act (for example Payroll Tax Act 2007 (NSW) Part 3, Division 7). Leading authorities include [Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259](https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWCATAD/2021/259.html), affd [2023] NSWCA 40, and [Commissioner of State Revenue (Vic) v The Optical Superstore Pty Ltd [2019] VSCA 197](https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/vic/VSCA/2019/197.html). The NSW Court of Appeal in [Chief Commissioner of State Revenue v Uber Australia Pty Ltd [2025] NSWCA 172](https://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/nsw/NSWCA/2025/172.html) declined to overrule Optical Superstore and Thomas & Naaz.
Why are medical practitioners usually caught?
Several court cases have established that medical practitioners typically fall within payroll tax provisions because:
- They serve the needs of the FSP's administrative services business by seeing patients
- The FSP often controls appointment scheduling
- Patients may view practitioners as part of the premises
- Billing and administrative services are provided by the FSP
Which states have GP exemptions or amnesties?
Victoria: Current GP Exemption
Victoria has implemented the most comprehensive reforms:
Victorian GP Exemption: Since 1 July 2025, wages paid or payable by a GP medical business to employee and contractor GPs are exempt when related to fully-funded items of GP work. The exempt proportion is calculated by a statutory formula. Source: SRO Victoria, Medical industry.
- The exemption is proportionate to fully-funded GP work, rather than an automatic exemption for all GP wages
- Covers both contractor and employee GPs
- Does not extend to specialists or allied health
New South Wales: Bulk-Billing Thresholds
NSW has introduced a rebate for contractor GP wages linked to prescribed billing arrangements (Revenue NSW Bulk Billing Support Initiative; CPN 036v2):
- Metropolitan Sydney: at least 80% of GP services of the medical centre under prescribed billing arrangements
- Outside Metropolitan Sydney: at least 70%
- Rebate available from 4 September 2024 for eligible contractor-GP wages; there is no published end date
- The rebate does not apply to wages paid to employee GPs
Queensland: Statutory GP Exemption
- From 1 December 2024, a statutory exemption for eligible GP wages
- Covers both contractors and employees
- No bulk-billing requirement
- The former administrative arrangement was withdrawn after the Revenue Legislation Amendment Act 2025 gave the exemption retrospective legislative effect
South Australia: GP Bulk-Billing Exemption
- The historical amnesty exemption applies to eligible unpaid contractor wages for 2018-19 to 2023-24; it does not refund payroll tax already paid
- A GP bulk-billing exemption has applied from 1 July 2024 for eligible prescribed medical practices under Revenue Ruling PTASA004 V3
- Revenue Ruling PTASA005 remains current for eligible medical practitioners contracted by regional Local Health Networks for rural and regional hospital services
- Outside these reliefs, medical practices must meet all standard payroll tax requirements
Australian Capital Territory: Current GP Wage Exemption
- The temporary contractor-GP amnesty ended on 30 June 2025
- Payroll tax liabilities waived until 30 June 2023
- From 1 July 2025, designated medical practices may claim an exemption for GP wages relating to bulk-billed, Veteran's Entitlements Act, or Workers Compensation Act medical services
- The current exemption replaced the temporary amnesty and has no 65% bulk-billing threshold
Western Australia: Different Framework
- RevenueWA's current payroll tax employer guide applies the general rates, thresholds and grouping rules
- No GP-specific exemption, rebate or amnesty is identified in that guide
How can a practice manage its payroll tax position?
Immediate Action Steps
- [ ] Review all practitioner contracts against the State "relevant contract" provisions (payroll tax) and, separately, the Fair Work characterisation test
- [ ] Calculate potential payroll tax exposure for contractor payments
- [ ] Assess eligibility for any current state-specific exemption, rebate or relief (many historical amnesties have ended)
- [ ] Document bulk-billing or fully-funded percentages if relevant
- [ ] Register for payroll tax if crossing thresholds
Structuring Considerations
To review payroll tax positions, Facilities Service Providers should consider:
- Separate entities for different practitioner types
- Utilise multiple thresholds where permissible
- Consider interstate operations carefully
- Ensure contracts reflect genuine commercial arrangements
- Align written terms with practical operations
- Regular review and updating of agreements
- Monitor bulk-billing percentages for exemption eligibility
- Consider targeted bulk-billing to meet thresholds
- Document all bulk-billed services accurately
Risk Management Framework
Implementing robust risk management includes:
- Provision for potential tax liabilities
- Professional indemnity insurance review
- Regular financial audits
- Cash flow planning for assessments
- Monthly payroll tax calculations
- Quarterly contract reviews
- Annual structure assessments
- Ongoing professional advice
How does payroll tax differ for GPs, specialists and allied health?
General Practice
- Multiple state exemptions or rebates available for eligible GP work
- Bulk-billing or fully-funded linked incentives in some jurisdictions
- Historical amnesty windows in some jurisdictions have ended
- Eligibility is fact-specific and should be confirmed with the relevant revenue authority
Specialist Medical Practices
- Limited exemptions available
- Full payroll tax obligations typically apply
- Higher risk of retrospective assessments
- Need for careful structuring
Allied Health Practices
- No specific exemptions in any state
- Standard contractor provisions apply
- Full compliance required
- Consider alternative structures
Multi-Disciplinary Practices
- Segregation of different practitioner types
- Separate tracking for exemption eligibility
- Multiple compliance strategies
- Professional advice essential
What are the most common payroll tax mistakes?
Documentation Failures
Many practices fail audits due to inadequate documentation. Maintain comprehensive records of all practitioner arrangements, bulk-billing percentages, and exemption eligibility.
Misunderstanding Exemptions
- Assuming all medical practitioners qualify for exemptions
- Believing contractor status automatically results in payroll tax non-eligibility
- Overlooking the need to apply for any remaining relief programs
- Failing to monitor ongoing compliance requirements
Calculation Errors
- Incorrect contractor payment inclusion
- Missing superannuation in wage calculations
- Overlooking fringe benefits
- Errors in multi-state apportionment
Future Outlook and Preparing for Change
Anticipated Developments
- Potential national harmonisation efforts
- Extended exemptions under consideration
- Technology-driven compliance tools emerging
- Increased audit activity expected
Strategic Planning
Forward-thinking practices should:
- Subscribe to revenue office updates
- Engage professional advisors
- Participate in industry consultations
- Invest in payroll systems
- Develop internal expertise
- Create audit trails
- Evaluate practice ownership models
- Plan for succession with tax efficiency
- Build scalable compliance systems
How do you set up payroll tax compliance?
Setting Up Compliance Systems
Implementation Checklist
- 1Audit Current Arrangements - Review all practitioner contracts and payment structures
- 2Calculate Exposure - Determine potential payroll tax liabilities
- 3Apply for Relief - Submit any available rebate, exemption or voluntary disclosure where currently open; do not assume a historical amnesty still applies
- 4Implement Systems - Establish ongoing compliance procedures
Working with Revenue Offices
- Proactive disclosure of uncertainties
- Seeking private rulings for complex arrangements
- Participating in voluntary disclosure programs
- Maintaining open communication channels
Conclusion
Payroll tax compliance for medical practitioners has become increasingly complex, with significant variations across Australian jurisdictions. The expansion of payroll tax to contractor arrangements, combined with state-specific exemptions and rebates, creates both risks and options for Facilities Service Providers.
Successful compliance generally depends on understanding the specific obligations that may apply, considering available exemptions, and implementing systems to manage ongoing requirements. Potential liabilities can be substantial. The cost of non-compliance can exceed the investment in proper structures and professional advice.
FSPs should assess their position against current law. Many historical amnesty windows have closed. Regular review of arrangements remains important because this area of law continues to evolve.
*Disclaimer: General Information Only. This article does not constitute legal or tax advice. For advice specific to your circumstances, please contact Hamilton Bailey directly.*
Every matter turns on its own facts and we do not guarantee any particular outcome.