The Payroll Tax Reckoning: What the Contractor Rulings Mean for Allied Health Practice Owners
For a decade, engaging practitioners as contractors was the default operating model for allied health. State payroll tax rulings have quietly dismantled that assumption. After the Thomas and Naaz litigation ran its course, most contractor arrangements inside a multi-practitioner clinic are now at risk of being treated as “relevant contracts” — with the practice, not the practitioner, carrying the tax on the money that flows through.
This is the payroll tax reckoning facing allied health practice owners. Below is what the rulings actually say, why the general practitioner carve-outs do not protect physiotherapy, psychology, podiatry or dental practices, and the concrete steps to assess, manage and restructure your exposure before a State Revenue Office does it for you.
Why contractor payments are now treated as wages
The instrument is the “relevant contract” provisions in the harmonised Payroll Tax Act 2007, mirrored across NSW, Victoria, Queensland and most states. Where a clinic engages a practitioner to perform work that forms part of the clinic’s business, payments to that practitioner — even a share of Medicare benefits or patient fees moving through a service-fee arrangement — can be deemed taxable wages. The exemptions must be actively established; the default position is that the payments are caught.
The defining case is Thomas and Naaz. Doctors billed Medicare, the practice collected the benefits, retained roughly 30% as a service fee and remitted the balance to the practitioners. The NSW Civil and Administrative Tribunal found the arrangement attracted payroll tax under the contractor provisions, producing assessments of more than $795,000 across five years. The NSW Court of Appeal refused the practice leave to appeal, ending the dispute and confirming the reasoning. Revenue NSW has since codified its position in Revenue Ruling PTA041 on medical centres, and on 11 August 2023 issued guidance alongside the State Revenue Office Victoria that expressly extends to physiotherapy practices, dental clinics and other allied health providers.
Why the GP exemptions do not cover allied health
Political pressure produced relief — but only for general practice. From 1 December 2024 Queensland exempted wages paid to contractor and employee GPs, a position since legislated by the Queensland Revenue Office. Victoria exempts wages paid to GPs for bulk-billed consultations from 1 July 2025. South Australia has exempted GP bulk-billed services since 1 July 2024, and New South Wales offers a rebate to practices meeting bulk-billing thresholds (80% of GP services in metropolitan Sydney, 70% elsewhere) from 4 September 2024.
Every one of these measures is confined to GPs. The Victorian exemption states plainly that it does not apply to non-medical GP businesses — that is, allied health professionals and dentists. Physiotherapy, psychology, podiatry, occupational therapy, speech pathology, dietetics and dental practices sit entirely outside the carve-outs and carry the full weight of the relevant-contract rules.
The exemptions an allied health practice can still use
Allied health practices are not without options. Under the relevant-contract provisions, several exemptions can take a specific arrangement outside the net — but each must be genuinely met, documented, and tested against how the practice actually operates.
A contractor who performs the same or similar services for the practice on no more than 90 days in a financial year is exempt. Any part of a day counts as a full day — and once the 90-day limit is crossed, every payment in that year, including the first 90 days, becomes taxable.
Where the practitioner genuinely provides the same services to the public in their own right, the contract can be excluded. Merely being “available” to others is not enough — there must be a real, independent practice.
If the contracting entity engages two or more people to perform a significant part of the work, the exemption can apply — relevant to group practices and associate-run entities.
Total Australian taxable wages beneath the state threshold (for example, $1 million in Western Australia) may keep smaller practices out of the net altogether — but grouping provisions can aggregate related entities, so check before you rely on it.
What practice owners should do now
Treat this as a live financial risk, not a compliance footnote. Interest and penalties apply to back years, and the amnesties that briefly sheltered some practices have largely closed for allied health.
Audit the reality, not just the paperwork
Review every practitioner agreement and, more importantly, the operational reality behind it — rosters, billing, restrictive covenants, branding and who the patient believes they are seeing. It is this reality, not the contract’s wording, that decided Thomas and Naaz.
Quantify the exposure across states
Model your liability in every state you operate in, and size the exposure on prior years. A practice paying, say, $1.2 million a year to contractor practitioners can face a payroll tax bill well into six figures once thresholds are exceeded — before interest and penalties on back years.
Test the structure — and the super
Establish whether a genuine service-entity structure — where the practice sells administrative services to independent practitioners at arm’s length — reflects reality, or whether it is really an income-distribution mechanism that will not survive scrutiny. Revenue offices are examining exactly this distinction. Do not overlook superannuation guarantee either: the ATO can treat labour-based contractor payments as attracting super, a separate liability from payroll tax.
Where the model needs to change, restructuring is a strategic decision — it affects practitioner economics, recruitment and the valuation of the practice, not only its tax. This is where operational partners earn their keep. HealthPlex’s management services help allied health practices redesign engagement models, billing and administration so they stand up to a relevant-contract review, while our partnership opportunities and options to work with us give owners a route to consolidate under a structure built for the current rules. Learn more about HealthPlex and how we support practice owners across NSW, the ACT and Queensland.
Payroll tax and allied health: common questions
Do the GP payroll tax exemptions apply to allied health practices?
No. The Queensland, Victorian, South Australian and NSW measures are limited to general practitioners. Physiotherapy, psychology, podiatry, dietetics, occupational therapy and dental practices remain fully subject to the relevant-contract rules.
Does a written contractor agreement protect my practice from payroll tax?
Not on its own. Revenue offices assess how the arrangement operates — rosters, billing, the patient relationship and restrictive covenants — not just the label on the contract. Thomas and Naaz turned on that operational reality.
What exemptions can an allied health practice rely on?
Chiefly the 90-day exemption, services genuinely provided to the public, engagement of two or more workers, or total wages below the relevant state threshold. Each must be genuinely met and documented, and grouping provisions can aggregate related entities.
Is there still a payroll tax amnesty for allied health?
Broadly no. The amnesties and relief that emerged were focused on GPs and have largely closed for allied health. Back years can attract interest and penalties, so early review and, where appropriate, voluntary disclosure to the relevant State Revenue Office are prudent.
By Alex W. HealthPlex writes for employers, insurers and allied health practice owners on workplace health, injury management and the business of running allied health services in Australia.
General information about payroll tax and contractor rulings in Australia; not tax, legal or financial advice. State rulings, thresholds and exemptions change — confirm your current obligations with the relevant State Revenue Office or a qualified adviser.