Bulk-billing GPs to escape payroll tax in $10m government backdown

A government spokesperson said the move was expected to cost the state about $10 million per year.

The decision follows widespread outcry and lobbying from GP and medical alliances at the prospect of applying a long-dormant tax rule to GP practices.

A State Revenue Office ruling in August 2023 said medical practitioners like GPs were operating as "common law employees" of their medical clinics, which meant the medical clinics were liable to pay payroll tax for them.

GPs are technically sole traders working with their own licence and ABN, but when they work full time at one clinic they are operating almost identically to a traditional employee.

The tax laws that make medical centres liable for payroll tax on their practitioners have been around for decades and never been applied but recent High Court and Australian Tax Office rulings gave state governments the green light to start sending out tax bills.

In Victoria one GP practice manager suddenly found himself liable for $800,000 in taxes because the laws were also being applied retrospectively, going back five years.

A long-time GP in Warrnambool in south-west Victoria said many practices would become "non-viable" if the law was applied across the state.

But the government said on May 22 it had decided to ditch the plan to apply the law retrospectively, and also offered an amnesty until June 30, 2025 for any GP practices that hadn't already started paying payroll tax on their contracted GPs.

The special exemption would be enforced through Tim Pallas' "ex gratia" powers as Victorian Treasurer.

But biggest change would be an ongoing exemption to the tax for any payments made by GP practices to their GPs for bulk-billed consultations, starting from July 1, 2025.

Mr Pallas said the government had listened to the GP sector.

"We've worked closely with the primary care sector on how we can best support them - and we're making these long-term changes to provide certainty to general practice businesses and support more bulk-billing for Victorians," Mr Pallas said.

Health Minister Mary-Anne Thomas said the decision was part of the government's efforts to repair the damage done by a decade of federal Coalition starvation of the sector.

"We know that primary care is broken following a decade of neglect from the former federal Liberal National government - this will deliver certainty for GPs and help to strengthen and grow bulk billing rates," Ms Thomas said.

Australian Medical Association Victoria president Jill Tomlinson said it would provide certainty and clarity to GPs.

"While AMA Victoria acknowledges that there will be costs associated with this transition, it is extremely positive news for general practices, general practitioners and Victorians," Dr Tomlinson said.

Royal Australian College of General Practitioners Victoria chair Anita Munoz said the prospect of retrospective tax bills had been a huge source of anxiety.

"This move will help keep local GPs' doors open," Dr Munoz said.

"We appreciate the Victorian Government coming to the table and working with us to find a middle-ground solution."

Rural Doctors' Association of Victoria president-elect Louise Manning said she hoped it was a sign of further reforms.

"The accessibility of affordable primary care is of major concern to RDAV, and broader health system reform is needed to ensure the viability of private rural general practice into the future so that all communities can access safe and appropriate care close to home," Dr Manning said.

"RDAV will continue to work with the Government to ensure that general practices in rural and regional Victoria will be able to continue to service their communities."