Payroll Tax for Medical Practices in Victoria: 2026 Guide

The most expensive letter a Victorian practice owner can receive is not from the ATO. It is a State Revenue Office assessment treating five years of contractor doctor payments as wages, with interest and penalty tax on top. On a typical suburban clinic's numbers, that is a six-figure liability for arrangements the owner believed were standard practice.

This guide explains how GP payroll tax works in Victoria in 2026-27: the relevant contract rules, the court decisions that changed the landscape, the exemption that started on 1 July 2025, and what to do if your practice has never tested its position. It sits alongside the structural questions we cover for medical and dental practice clients every week.

Do Medical Practices Pay Payroll Tax on Contractor Doctors?

The mechanism is the relevant contract provisions in Division 7 of Part 3 of the Payroll Tax Act 2007 (Vic) (sections 32 to 35 do the heavy lifting), explained in the SRO's relevant contracts ruling. The Act contains exemptions, including for practitioners who genuinely provide services to the public at large and for engagements of 90 days or fewer in a financial year, but they are fact-specific and narrower than most practices assume.

None of this is unique to medicine, but medical centres received their own dedicated guidance in August 2023, when Victoria joined the other harmonised states in publishing Revenue Ruling PTA-041 on medical centres. The ruling expressly covers general practice, dental, physiotherapy and radiology businesses that engage practitioners to serve their patients.

What Is a Relevant Contract?

The point that surprises practice owners most is the treatment of money. Many clinics collect patient and Medicare receipts on behalf of their doctors, deduct a service fee, and remit the balance. The medical centres ruling is explicit that it does not matter that the payments come from money the centre held on the practitioners' behalf. Routing the doctor's own billings through the practice's account is enough for those flows to be counted as deemed wages where a relevant contract exists.

The counterpoint is that arrangements where practitioners conduct their own practices, bill in their own right and buy defined services from a facility provider sit differently. The label on the agreement decides nothing; the flow of funds, the patient relationship and day-to-day control decide everything. This is the same substance-over-form lens we apply in our service trust structures guide, and it interacts with the income tax rules covered in our PSI basics for doctors post.

What the Courts Decided

Two cases explain why revenue offices across Australia moved on medical centres.

Optical Superstore (Commissioner of State Revenue v The Optical Superstore Pty Ltd [2019] VSCA 197) concerned optometrists paid from money the store held on trust for them. The Victorian Court of Appeal held that "paid or payable" simply means the provision of money, so even returning a practitioner's own funds can be a wage payment under the relevant contract rules. The High Court declined to hear a further appeal in February 2020, leaving the decision standing.

Thomas and Naaz (Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259) involved a familiar model: doctors on 70/30 splits, with the practice collecting Medicare receipts and remitting 70 per cent. The Tribunal found the agreements were relevant contracts and the payments taxable wages, the Appeal Panel agreed, and in [2023] NSWCA 40 the NSW Court of Appeal dismissed the practice's summons seeking leave to appeal, holding that its grounds raised no genuine question of law. The decision is a NSW one and does not bind a Victorian court, but the relevant contract provisions are substantially harmonised and the SRO expressly relies on Thomas and Naaz in its medical centres ruling, so Victorian practices should treat the reasoning as the SRO's operating position.

After those decisions, the question for a practice owner is no longer whether the rules can reach contractor doctors. They can. The question is whether your specific arrangements fall inside them, and what the exemption now saves you.

How Does Victoria's GP Exemption Work From 1 July 2025?

The exemption was legislated through the State Taxation Further Amendment Act 2024 and is summarised in the SRO's 1 July 2025 changes notice. It followed a transition period: the Victorian Government provided ex gratia relief so that assessments were not raised on payments to contractor GPs up to 30 June 2024 for all GP practices, with a further 12 months to 30 June 2025 for practices that had not already been advised of a liability or begun paying. That relief has now ended. It was administrative, not legislated, and it never covered practitioners other than GPs.

The mechanics sit in clause 19B of Schedule 2 to the Payroll Tax Act 2007 (Vic), inserted by the State Taxation Further Amendment Act 2024. Clause 19B(2) sets a statutory apportionment formula: the exempt share of each GP's wages reflects the amounts received for fully-funded work as a proportion of the amounts received for all their work, not a count of consultations. "Fully-funded" reaches beyond bulk billing to Medicare benefits and incentive payments, amounts paid under statutory entitlements such as personal injury compensation schemes, and the reasonable cost of consumables used to administer vaccines. The SRO's medical industry guidance sets out the calculation and the records a practice must keep to support it.

The compliance task is therefore billing-data substantiation: the practice management system needs to identify the fully-funded amounts per GP so the formula can be applied and evidenced. The federal expansion of bulk-billing incentives from 1 November 2025 is lifting many clinics' fully-funded share, which makes the calculation worth redoing for 2026-27 rather than reusing last year's numbers.

What Are the Victorian Payroll Tax Rate and Threshold?

The threshold increase from $900,000 is set out in the SRO's threshold changes notice, and the rates in its published legislation summary. Employers with national payrolls above $10 million also pay the COVID-19 debt temporary surcharge and the mental health and wellbeing surcharge, which most single-site practices will not meet, but multi-clinic groups can. Entities that meet the grouping provisions in Part 5 of the Act, through common control, related bodies corporate or the use of common employees, are grouped and share one threshold, which is precisely where service entity structures need care.

For context on why the SRO pursues this base: payroll and labour-force taxes are budgeted to raise $11.9 billion for Victoria in 2025-26, roughly 28 cents in every state tax dollar. This is not a peripheral tax the state might overlook.

Worked Example: A Six-GP Melbourne Clinic

A suburban Melbourne clinic engages six contractor GPs on 70/30 splits. In 2025-26 it collects $3 million of gross billings, remits $2.1 million to the GPs' entities, and pays $600,000 in admin and nursing salaries. The figures are illustrative and rounded.

• If the arrangements are relevant contracts and no exemption applies: deemed wages are $2.7 million ($2.1m practitioner payments plus $600,000 salaries). After the $1 million threshold, $1.7 million is taxable at 4.85 per cent: about $82,450 a year. For a practice with no relief, a retrospective assessment covering four or five years approaches $330,000 to $412,000 before interest and penalty tax. A GP clinic will usually fare better than that arithmetic suggests: the ex gratia relief generally covers a qualifying GP practice's contractor payments up to 30 June 2024, or 30 June 2025 where it had not been contacted by the SRO or begun paying. The full multi-year exposure is the realistic scenario for dental, specialist and allied health practices, which had no relief.
• If every GP consultation is bulk-billed from 1 July 2025: the $2.1 million of GP payments is exempt. The remaining $600,000 of salaries sits under the threshold, so the annual liability is nil.
• If fully-funded work represents 40 per cent of the GPs' relevant payments under the statutory formula: roughly $840,000 of the GP payments is exempt. Taxable wages are about $1.86 million; after the threshold, $860,000 at 4.85 per cent is roughly $41,710 a year. The clinic's billing mix, not its contracts, now sets its payroll tax bill.

In our own client base, the arrangements that stand up best to this analysis are the ones built deliberately. One medical centre client of ours runs its practitioner arrangements on a facility model: practitioners conduct their own practices and pay the centre for rooms and support services, invoiced by the centre rather than netted out of patient money it holds. Reviewing that structure against the relevant contract rules was a materially different exercise from reviewing a 70/30 collect-and-remit model, because the flow of funds already told the right story. The lesson transfers: substance first, then documents, then the tax outcome follows.

What Practice Owners Should Do Now

• Map your arrangements honestly: who books patients, who collects fees, whose bank account the money lands in, and what the agreements actually say.
• Quantify the exposure on your real numbers, including the grouped entities. If deemed wages exceed $83,333 a month, registration obligations are already live.
• Build the bulk-billing evidence: extract fully-funded payment data per GP from your practice software and document the statutory formula calculation behind any exemption claim.
• Check the July annual reconciliation. July 2026 was the first reconciliation applying the exemption; errors in either direction are correctable now, on your initiative, rather than in a review.
• Treat restructure pitches with caution. Schemes marketed since Thomas and Naaz, such as rerouting patient money so it never touches the practice account, are tested on substance, not paperwork. The Act's third-party payment provisions (section 46) can deem payments made through another entity to be wages where a relevant contract exists, and anti-avoidance provisions sit behind them. Keeping money out of the clinic's bank account is not, by itself, an answer. Restructure only with legal advice alongside the tax analysis.

Dentists, specialists and allied health owners should read the exemption's boundaries carefully: PTA-041 expressly reaches their businesses, and no equivalent exemption or amnesty protects them. Prior years remain assessable. If that describes your practice, a proactive review is cheaper than a reactive one, and objections or litigation belong with a lawyer, with whom we work alongside our tax compliance service. Payroll registration and monthly returns are handled within our bookkeeping and payroll service, exposure modelling within business advisory and forecasting, and the individual tax side of practitioner arrangements is covered in our guide to how doctors are taxed in Australia. As a CPA firm, our role is the numbers and the tax position; we say so plainly where a question is legal rather than accounting.

Key Takeaways

• Contractor doctor payments can be deemed wages under Victoria's relevant contract rules; Optical Superstore and Thomas and Naaz settled the principle.
• From 1 July 2025, GP wages for fully-funded (including bulk-billed) consultations are exempt, apportioned under the statutory formula in Schedule 2 clause 19B: GPs only.
• The rate is 4.85 per cent (1.2125 per cent regional) above the $1 million threshold, which phases out between $3 million and $5 million of wages; entities grouped under Part 5 share one threshold.
• The ex gratia amnesty ended 30 June 2025 and never covered dentists, specialists or allied health; retrospective assessment risk is live for non-GP practices.
• Bulk-billing data is now a tax record: build the per-GP, per-consultation evidence behind any exemption claim.

Frequently Asked Questions