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Full Supreme Court Overturns Optometrist payroll tax case

In a recent decision by the Victorian Supreme Court of Appeal (VSCA) in Commissioner of State Revenue v The Optical Superstore Pty Ltd[1] (Optical Superstore), the Optical Superstore (Optical Superstore) was held liable for payroll tax under Victorian law, on distributions made to practitioner optometrists from its trust account under an occupancy agreement.

Increased scrutiny in the medical and health industry indicates practitioners and business owners alike need to review their business structures to ensure they remain compliant with current laws.

In particular, franchise and other business systems that licence independent service providers to provide services under the auspices of the franchisor's brand for the purposes of servicing mutual customers need to review their structure. On the basis of the Optical Superstore decision, at least in Victoria, where the franchisor collects payment direct from the franchisee's customers and then remits the proceeds back to the franchisee after deducting administration fees and royalties due to the franchisor, payroll tax may be payable on the amount of the remittance. This is so despite the remittance being direct revenue earned by the franchisee for providing the services direct to customers.

Leigh Baring and Greg Hipwell

Importance of the recent VSCA decision

Payroll tax is paid by an employer to employees in respect of taxable wages.

Importantly, there are provisions in the Payroll Tax Act 2007 (PTA) that deem:

  • persons to be employers and employees when they would not otherwise be ordinarily regarded as such; and
  • amounts to be taxable wages when they would not otherwise be wages as ordinarily understood.

More specifically, where a person is paid an amount for or in relation to work performed, then:

  • the payer can be deemed to be an employer;
  • the payee can be deemed to be an employee; and
  • the payment can be deemed to be taxable wages.

In this case Optical Superstore made space available to optometrists to provide services to the customers of the store. The optometrists would directly bill the customers and the fees would be paid to Optical Superstore who would then deduct certain fees (for rent etc) and then remit the balance to the optometrists. Whilst it was accepted that:

  • the optometrists were not common law employees of Optical Superstores;
  • the optometrists directly provided optometrist services to the customers; and
  • all funds that were paid to Optical Superstores were held in trust for the benefit of the optometrist (subject to the appropriate deduction for fees) (net remittances),

there was work performed by the optometrists in favour of Optical Superstores and the net remittances from Optical Superstore to the optometrist were payments that related to that work.

Consequently, it was found for the purposes of the PTA, that Optical Superstores was a deemed employer, the optometrists were deemed employees and the net remittances were payments that constitute taxable wages. That is, payroll tax was payable in respect of the net remittances.

In our view this case has significant ramifications where principals/contractors or franchisor/franchisees have mutual clients and the principal/franchisor collects all of the monies from the provision of the services by the contractor/franchisee to the customer.

More information from Maddocks

For more information, contact Partners Leigh Baring (03) 9258 3673 or Greg Hipwell on (03) 9258 3354 or contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.

[1] as Trustee for OS Management S Trust and others [2019] VSCA 197.


Lawyer in Profile

Georgia Borg
Georgia Borg
+61 3 9258 3554

Qualifications: LLB, University of Sheffield, LLM(CL), University of British Columbia

Georgia is a member of Maddocks Commercial team and assists in a variety of commercial and corporate matters for private, public and not-for-profit clients.

Her expertise includes advising on general commercial law, wills and estates law, charities and not-for-profit law along with corporate law.

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