7.a.19. The following two situations represent common working arrangements between doctors and surgeries. In the first situation, Dr A and Dr B agree that Dr A will receive (or keep) 50% of Dr B's billings. In the second situation, Dr A and Dr B agree that Dr B will receive (or keep) the greater amount of $45.00 an hour or 50% of Dr B's billings. The other facts are the same for both situations:
- Dr A owns and operates a private medical practice and surgery.
- Dr A and Dr B enter an arrangement whereby Dr B practises at Dr A's surgery (but not on the basis of an employment relationship).
- Dr B has some existing patients who now attend Dr A's surgery (to be treated by Dr B) and Dr B also treats a proportion of new patients as they attend the surgery. If they do not express a preference, new patients are allocated by the receptionist/practice manager employed by Dr A based on the respective availability of Doctors A and B.
- The patients Dr B sees are billed in Dr B's name (and provider number).
- The medical records of all of Dr A's and Dr B's patients are kept and maintained by Dr A's staff and held at the surgery.
- Dr B is responsible for payment of Dr B's medical indemnity insurance and will be sued by his/her patients in the event of an adverse medical outcome. Dr B also provides some but not all the equipment used in Dr B's practice.
- Dr A provides to Dr B premises for Dr B to practise in (including payment by Dr A of all outgoings (insurance, rates, electricity, water supply etc), a reception and billing service, some (but not all) equipment used in Dr B's practice; as well as the opportunity for Dr B to increase his/her income by being introduced to new patients who attend Dr A's surgery.
Non-interpretative – straight application of the law.
(a) Who is responsible for charging and collecting GST?
This question focuses on a medical association.
It is understood that Dr A owns a medical practice and makes facilities available for Dr B to practice in. Dr A operates as an independent contractor, owns the premises and employs administrative staff. Dr B also operates as an independent contractor, renting premises and administrative services from Dr A.
In this situation, Dr A is liable to remit GST on the supply of rental premises, administrative services and facilities to Dr B, where the requirements of section 9-5 are satisfied.
The supply of a 'medical service' by Dr A or Dr B to a patient, will be GST-free where the requirements of section 38-7 are satisfied (for a discussion of these requirements, refer to Part 1.a. and 1.b. of the Health Issues Log).
(b) What is (are) the criterion(a) used in determining the liability for collecting and charging GST as between Doctors A and B?
Section 9-40 of the GST Act establishes that the supplier is liable to remit GST on any taxable supplies made.
The criteria that determine whether a supply is taxable, are established in section 9-5 (unless the supply is GST-free or input taxed).
What supplies are made and to whom, is determined by ascertaining the true character of the transactions between the parties and is dependent on the facts of each particular case.
In the present scenario, the supplies are determined by ascertaining the true character of the transactions between both Doctors A and B, and between the patient.
Examining the transaction, in part, involves considering what legal relationship/entity exists between Doctors A and B, which entity is engaged by each patient and which entity, Doctor A or Doctor B, is entitled to seek recovery from the patient in their own name.
Where Doctor A is supplying the service to the patient with Doctor B performing the service and Doctor A is entitled, in their own name, to seek recovery from the patient for the performance of the service, Doctor B will be supplying professional services to Doctor A.
However, where Doctor B is supplying and performing the service to the patient and is entitled, in their own name, to seek recovery from the patient for the performance of the service, Doctor A will be supplying facilities and administrative services to Doctor B.
(c) What further information (if any) is required in order to determine GST liability?
It would be necessary to have evidence of the nature of the relationship between Doctor A and Doctor B (including any written contracts, agreements or letters), which entity is supplying the service to the patient (as opposed to performing the service) and which entity is entitled to seek recovery from the patient in their own name.
(d) What should Doctors A and B do to ensure that the GST liability is appropriately clarified to the satisfaction of the ATO?
This question focuses on a medical association. Private binding rulings may be sought in relation to other situations.
Subject to their own advice, Doctors A and B may wish to consider reducing their agreement to writing. The terms of the agreement could identify what supplies are contemplated, by whom each supply will be made, and to whom. However, it should be noted that any written agreement may be evidence of the factual situation but is not a replacement for the actual facts of the situation.