Thomas & Naaz Appeal Decision

There has recently been an update on the NSW payroll tax case which has seen a GP practice lose its legal battle over a large payroll tax bill. The case in question is Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAP 220. The original decision found that Dr. Thomas (who runs three practices in Sydney) owed the The state almost $800,000 in the retrospective payroll tax. This was due to payments to doctors being deemed by the Tribunal as assessable for Payroll Tax as payments under a "Relevant Contract." Dr. Thomas appealed this decision to the Civil and Administrative Tribunal. The appeal panel has recently released its decision.


Dr. Thomas appealed the original decision on 7 grounds including;

  • it should not have found the doctors' payments to be waged;
  • it should not have found doctors provided services to the practice, but only to patients; and
  • its contracts were not "relevant" under payroll tax law.

Ultimately the Tribunal rejected the appeal on all grounds.

There are a few important points that this case raised initially, and this appeal now reiterates. The flow of money was one of the most important practical aspects that caused section 32 of the Payroll Tax Act to be triggered. This section deals with 'relevant contracts'.

The next most important step is looking at reviewing your contracts, Do they have provisions such as a restraint of trade, complying with rosters, and giving notice of holidays? Is the doctor actually a supplier to the practice, not a supplier to the patient only?


  • Owners of medical practices are now aware they are at more high risk of receiving a large retrospective payroll tax bill;
  • Agreements should accurately reflect an arrangement whereby the practice is providing a service to enable doctors to practice from their premises;
  • Accounting for receipt of funds and payments to practitioners needs to be consistent with the agreement;
  • Payroll tax laws are different in each State;
  • It is important to bear in mind that this is not a Court decision it is a less authoritative tribunal decision; and
  • It is also important to remember that this case has highlighted some practical issues in the manner in which this practice's business was conducted.

A key takeaway from this case is to remove obligations on the doctor which may be deemed a "relevant contract", and to ensure the distinction between the "first supply" being the the doctor providing clinical services to individual patients, and the "second supply", i.e., the transaction between the practice and the doctor.


Undertake a thorough review of any independent contractor arrangements to reduce the risk of an adverse Payroll Tax finding.

A review should cover the following areas:

  1. Practitioner Service Agreements
  2. Banking and Practitioner Payment processes
  3. Accounting Treatment of practitioner payments
  4. Any tax audit insurance cover

Importantly, ensure any tax audit insurance provides cover for state taxes such as Payroll Tax. Some tax audit insurance policies provide cover for federal taxes only, in which case they would not cover a payroll tax audit.

We encourage owners of medical practices to contact their accountant and legal advisor if Do you have any concerns about the contractual arrangement that you have in place for the engagement of medical practitioners.

Advice to Our Medical Practice Clients

Our advice to our medical practice clients is to keep treading carefully as this is an area of the law that is constantly evolving. However, this updated decision on the Thomas and Naaz's case continues to emphasize the need to review your current contracts.

Essentially, does what you have in your contract reflect the terms that what you want in your contract and does it reflect the totality of the arrangement with the doctor? You should ensure that your contracts are well-drafted – meaning that they are up-to-date and comprehensive, constituting the full agreement with each party.