Under Victoria's relevant contract rules, payments a medical practice routes to contractor doctors can be treated as taxable wages, even where the money was always the doctor's. From 1 July 2025, an exemption applies to wages paid to employee and contractor GPs for fully-funded (including bulk-billed) consultations. The exempt share is worked out under a statutory formula based on payment amounts, not per clinic, it does not cover dentists, specialists or allied health, and the amnesty for earlier years ended 30 June 2025.
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.
Often yes. Where a medical centre engages practitioners under arrangements that are relevant contracts, the payments flowing to those practitioners can be deemed wages and taxed at Victoria's 4.85 per cent payroll tax rate once the practice group exceeds the $1 million annual threshold. This applies to contractor doctors, not just employees, and the source of the money does not change the outcome.
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.
A relevant contract exists where, in practical effect, a practitioner supplies work-related services to the medical centre's business, rather than merely renting rooms from it. If the centre books the patients, collects the fees, sets the systems and pays the practitioner a share, the arrangement can be a relevant contract even though the practitioner is an independent contractor running their own entity.
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.
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.
From 1 July 2025, Victoria exempts from payroll tax the wages paid or payable to contractor general practitioners and employee general practitioners in relation to fully-funded consultations, which include bulk-billed consultations. The exempt portion is calculated under a statutory formula that apportions each GP's wages by the amounts paid for fully-funded work relative to all their work, so a mixed-billing clinic receives a partial exemption. It does not extend to dentists, specialists, nurses or allied health practitioners.
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.
As at August 2026, Victoria's payroll tax rate is 4.85 per cent, or 1.2125 per cent for eligible regional employers. The annual tax-free threshold rose to $1 million from 1 July 2025 ($83,333 monthly). The threshold deduction phases out for employers and groups with annual wages between $3 million and $5 million, and disappears entirely at $5 million or more.
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.
We review practitioner arrangements, model the exemption on your real billing data, and quantify any exposure before the SRO does.
Contact UsA 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.
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.
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.
A fixed-fee review of your practitioner arrangements, grouping and exemption position for 2026-27.
Book a MeetingDisclaimer: The information provided in this article is general in nature and does not constitute specific tax, legal, or financial advice. Payroll tax outcomes turn on the precise facts of each practice's arrangements, and disputes with the State Revenue Office are legal matters requiring specialist input. We recommend seeking professional advice tailored to your individual circumstances. 42 Advisory is a CPA firm and Registered Tax Agent.
Employers whose annual Australian wages sit under the $1 million threshold pay no Victorian payroll tax, and specific exemptions apply to certain organisations and wage types. For medical practices, the targeted exemption from 1 July 2025 covers wages to employee and contractor GPs for fully-funded (including bulk-billed) consultations.
The annual tax-free threshold is $1 million ($83,333 monthly), having increased from $900,000 on 1 July 2025. The threshold deduction phases out for employers and groups with wages between $3 million and $5 million and is nil from $5 million. Check the SRO's current rates page before relying on figures for a new year.
No. The Victorian exemption applies to general practitioners only, and only to the portion of wages relating to fully-funded work under the statutory formula. The medical centres ruling expressly covers dental, physiotherapy and radiology businesses, so non-GP practices carry relevant contract exposure without an equivalent exemption or amnesty.
Yes. Reassessments can reach back several years, with interest and penalty tax added. The ex gratia relief announced in 2024 protected contractor GP payments up to 30 June 2024, and to 30 June 2025 for practices not already advised of a liability, but it was administrative, GP-specific and has ended.
Genuine third-party supplier payments, exempt wage categories, and payments under arrangements that fall outside the relevant contract rules, such as engagements of 90 days or fewer in a year or practitioners truly serving the public at large. Each exemption is fact-specific and worth testing before it is relied on.