Before reading this post please note that working out GST Free supplies in the Allied Health industry and medical services that are GST Free can be complex and confusing. The information below is intended as an overview only and might not apply to your unique situation - it's always best you consult your Accountant and also the ATO when working out these issues and your own unique situation.
I was recently asked the following question by a new contractor:
"I would like to discuss my GST obligations as a contractor and to obtain some general advice on a contractor arrangement in the health services industry. The arrangement I am considering is to see the clients of another business for a percentage of the fee that the business charges the client. The service I would be providing is a GST-free “listed health service” but I am not completely sure what that means for me as a contractor. For example, I am not sure whether I need to include GST on my invoices to the business"
Being a contractor Psychologist with an arrangement of where your earn a % of the appointment fee income you generate at a workplace or an arrangement where you earn a % of the appointment fee and the workplace deducts the remaining % of the appointment fee income as an administrative services fee is a very common arrangement. For someone who is new to running an Allied health business, setting up their own practise with their own commercially rented premises and on the costs of setting up practise software and systems as well as the skillset required to do that is a big task that can be overwhelming. Contracting has become popular with many Allied health businesses and contractors as it caters for many of those start up issues as you are using some else's practise systems, premises and admin support staff and for a % fee or cost, all of that world is sorted and managed for you.
There is some clear guidelines and information available on how to treat these contractor arrangements for GST purposes but it depends on your unique situation with the workplace and the contract or agreement between the workplace and you. There are quite a few different variables involved in working out whether your invoices to the workplace should have GST added to them and in this blog post I will try and outline a workflow to help you understand these variables. Due to the complexity of GST and Allied Health and medical services it should be noted that this article is a "living breathing" document that gets updated and added too from time to time and to see the latest version or amendments please revisit this post each 12 months for the latest version.
Before we get into the nitty gritty details, if you have any specific questions in relation to this article or re: GST and allied health services and contracting arrangements or if you have feedback and additional information or corrections that might make this article clearer and more accurate, please contact me via my contact form (scroll to bottom of blog page, fill in your contact information and your question or feedback and hit SEND and I will chat with you further)
Thanks is due: Also by way of acknowledgment thanks is due to the following people and businesses in relation to ongoing support regarding accounting and GST for Allied Health Business. Any current errors in this blog post are mine not theirs.
Heide Robson CA
Charted Accountant / Registered Tax Agent
Principle Numba Australia www.numba.com.au
Author TAX TALKS Podcast for Australian Tax Professionals
Heide's articles and posts on GST for Allied Health have long been the gold standard and my own "goto"spot for helpful summaries on these issues including the following post:
......and now to the blog post
How do I know if I need to charge GST on my invoices as an Allied Health subcontractor or an Allied Health business who is working at another business premises?
1. GST Registration
The first initial consideration is whether your business is registered for GST or not. If you are not registered then you aren't part of the GST system and aren't required to submit Business Activity Statements to the ATO or record and add GST on your invoices. If your sales turnover is under $75,000 per year, registering for GST with the ATO is optional.
If you are registered for GST then continue on with point number 2.
2. What type of legal agreement do I have with the workplace - "Services" or 'Contractor" agreement, and who does the agreement say is earning the initial client income from appointments - is it my income, or their income?
This is a critical step in the process. Take a look at the legal agreement the workplace provided you with and that you signed. Is it a "contractor agreement" or a "service agreement" and what does the agreement say in relation to income earned, GST and the payment of client fees and %'s.
To determine whether your sales invoice to the workplace needs GST added on top or if the income you earned from client fees is GST applicable income or GST Free income -
the key thing to look for in this agreement is the assignment of income or "whose income is being earned" from the client fees - yours or the workplace's. Does the agreement state you are contracting to the workplace and earning them fee income - working for their business and generating them profit and the income from client appointments is theirs (if so, the income paid to you by the workplace will most likely be GST applicable / need GST on the invoice) or does it state and imply that you are actually under a practise management arrangement where YOU are earning fee income from the client appointments and the workplace is holding that income in trust for you and at the end of each fortnight or month they are then passing on that income (your client income) to you after deducting a management fee or service administration fee for your use of their premises and reception services (if so, in this case the income is more than likely to be GST Free income for you). In this last example, the GST Free nature of the Psychology appointment income from the client that is paid to you / passed onto you by the workplace is preserved and in most cases is not a 3rd party medical service that attracts GST. The service administration fee however does contain GST that you will be able to claim back on your BAS.
To make that bit clearer for you - what is the actual issue here? Lets step it out in a point by point summary:
1. For an allied health appointment to be GST Free Income for you, some of the conditions that needs to be met include it needs the treating practitioner (you) to be the person that is receiving that income from the client directly. There needs to be that direct link between you as the registered psychologist providing the GST free service to the client and the client directly paying you for that service and being considered by the ATO for GST purposes to be the "recipient" of the service which is also basically just a way of saying "the person who is paying for the appointment", although in some specific situations other parties can pay for the appointment and it will still be GST Free (eg: NDIS, some types of WorkCover sessions, some appointments paid by Government departments). This doesn't mean the client or party has to always deposit the appt fee income in your bank account first - it can be paid to the workplace that your practise is based at and they can "hold it in trust" for you in a sense, paying it to you at a later stage, but for tax purposes you need to be the person who has earnt that income.
2. If you are working for another business and contracting to them, and the income from client appointments is stated in your agreement as belonging to the workplace - not you - ie: your aren't "basing your own practise at their location" but you are working for them, then that direct link mentioned above in point 1. has been broken - the client isn't paying you directly, they are paying the workplace. In this scenario, when the workplace then pays you, they are simply paying you GST applicable contractor income rather than GST Free allied health appointment income from a client.
3. If you have a "Contractor" agreement with another business you need to read this document carefully. In many cases this agreement will imply and outline that you will be working for them, generating income for their business not yours and the client income is theirs and most times in that scenario your Tax invoice will need to have GST added on top.
4. If you have a "Services agreement" with another business you need to read this document carefully. If this agreement implies and outlines that the client income being earned is your income, and the workplace is simply collecting and holding that income for you on trust and then passing it onto you (after deducting a % fee for providing you with services as outlined in the service agreement such as rooms and reception services) then in most cases that income being passed onto you /paid to you will be GST Free income.
3. Special rules for Businesses who are a Pty Ltd Company or Trust
If your Business structure is a Company or Trust and your are contracting to a workplace working generating income for their business not yours as opposed to under a service agreement or contractor agreement where the income is considered by the workplace for tax and GST purposes to be your income (and they are collecting it on your behalf before passing it onto you after deducting services fees) then there is another strong indicator that income will always be GST applicable and need GST on your invoices to the workplace. A Company or trust is its own legal entity. Although an employee or contractor engaged by a Company might be a registered health practitioner such as a Psychologist, the actual Company itself is not a registered medical health practitioner - its a Company with its own legal entity that's different to its employees, contractors and directors and its the Company that is invoicing the other business / workplace and in that situation that entity is seen by the ATO as a third party that's basically charging a professional fee for hiring out labour and services to another workplace rather than a Health practitioner potentially providing a GST Free medical service to a client. In this situation, the actual cost of the counselling appointment to the client will be still GST Free but the GST Free status of that allied health income cannot be passed on to you . Your company is also obviously not a person / not a registered health practitioner that can supply GST Free allied health services to clients.
Some examples from the ATO, Tax Talks and other sites.
Ok after that "information dump" above lets try and spell out some different scenarios for you as a summary of what you have just read
Some examples: Whose income is being earned in the workplace - yours or theirs?
The answer to this question is critical in determining how GST applies to your invoices and the key point here is to work out who is actually earning the income from the client by looking at what your contract or agreement with the workplace say and also investigating what information is primarily shown on the workplaces invoice to the client. The 2 different possibilities are:
i. The income from the client is the workplaces
In this situation the agreement says the income being earned from the client belongs to the workplace and they are contracting you to earn fee income for their own business. The workplaces name is probably the most prominent one on the invoice to the client and they are organising and suppling the service to the client and paying you a professional fee as part of that process. They pay you a % of the appointment fee as income and this income is GST applicable and needs GST to be added onto your invoice to the workplace. In this situation, the workplace is earning the fee income and you are regarded by the ATO as supplying a service to a third party (the workplace) rather than to the client and the GST Free nature of the client appointment cannot be passed onto you. So in this case if your agreement is you earn 80% of the appointment fees then you invoice the workplace for 80% of the fees + add 10% GST on your invoice.
ii. The income from the client is your income
In this situation the agreement says the income being earned from the client is actually your income as the Allied health practitioner seeing the client and the workplace is basically collecting and holding that income on your behalf and then distributing it to you after deducting administration service fees for using the workplaces rooms and administration resources. Both the workplaces name and your name is on the invoice to the client but yours is probably the most prominent (not always). In this situation, you are providing a GST Free medical service directly to the client rather than supplying a service to a third party (i.e.: to the workplace as in situation i.). Its your client, and your GST Free income and as such your invoices to the workplace don't need GST added to them (in regards to the income) BUT its important to note that the administration service fees the workplace deducts from your income is not a GST Free expense - it is GST applicable thing and needs a GST component. For example if the agreement with the workplace is that its your client and your income and they will deduct a 20% administration fee before passing on that income to you and your income for the period is $1,000 then your invoice to the workplace would show 2 separate components of 1. GST Free Income off $1,000 and 2. less a deduction of 20% + GST for the admin fees (i.e. less $200 + $20 = $220) giving a total invoice payable to you from the workplace of $780.
"But hang on.....I'm in this type of arrangement and my workplace has never asked for an invoice from me....."
Don't be surprised if that's you. That's not unusual at all. Remember in this type of arrangement its your income, not theirs, so sometimes they wont ask you for a Tax invoice and what they may do is issue you 2 documents that they organise on their side of things.
Number 1: A disbursement statement showing total clients fees earned/paid to you during the period
Number 2: A tax invoice from them for the service admin fees you have paid them / they have deducted from you client income including the GST component (so you can claim that back from the ATO on your BAS)
The most common arrangements and financial administration workflow I see in this situation is either a) the workplace will issue you a disbursement statement showing total client fees for the period and will then pay 100% of those fees to you as per the statement, and then they will issue you a tax invoice for you to pay their admin service fee (eg: 30% of your client fees), or b) they will issue you a disbursement statement - or something called an "RCTI" - a Recipient Created tax Invoice where they create the invoice for you on your behalf - showing total client fees MINUS their admin service fee (eg: 30%) and then they will pass on the remaining balance to you.
What if I don't have a contractor or service agreement or if my contractor agreement seems like a service agreement or vice versa
There is no one fits size all rule and guide I can give you for this - I have seen contractor agreements that were actually worded as a practise management arrangement where the practitioner was actually running their own practise at the the business workplace (their clients, their income, the workplace was just collecting income on their behalf and deducting a professional fee before passing on the GST Free client fee income to the practitioner) and this scenario would normally have more frequently been called a "services agreement.
The key thing is to read the agreement carefully, chat with your Accountant and go over it with them if necessary to determine the GST implications and if there is no agreement, still follow the broad principles above of "whose income is it".
As a summary of the above, here's an overview from Taxtalks.com and a link to their full article on GST for Psychologists:
Practice Management Arrangement
"Sometimes a psychologist works in a practice under an arrangement, where they pay a percentage of their fee to the practice. Let’s say it is 20%, but it sometimes goes up to 50%.
So the practice operator pays for the premises, outgoings, reception, admin, marketing and whatever else the practice needs. And the psychologist pays 20% of their fee revenue to use the practice.
The consultation itself is GST-free as an other health service meeting the conditions in s38-10. But what about the 20% that go to the practice operator?
If the supply is made in the psychologist’s name – their name is on the bill – then the psychologist receives facilities and administrative services from the practice operator. And that service attracts GST. So if the psychologist receives $100 for their GST-free other health service performed at that practice, they need to transfer $20 plus GST to the practice operator. That is $22.
But if the operator is the one in whose name the supply is made – his name is on the bill – then the psychologist supplies professional services to the practice operator for 80% of the fee. So of the $100 they collect GST-free, they pay the psychologist $88 ($80 plus GST) for their services.
Neither the supply of facilities and administrative services nor the supply of professional services is an other health service that falls under s38-10. So in either case the supply between your client and Bob is subject to GST. "
As an additional summary of the above, here's an overview from the ATO
"Arrangements between clinics and health practitioners. Some health practitioners enter into arrangements with clinics for providing health services to patients. The health practitioner will perform the health services and the health clinic provides the rooms and administration. The health practitioner and the clinic may agree to split the patient fees between them.
There will be different GST outcomes depending on who is contracting who. This can only be determined by the contract entered into between the parties and contracts should clearly state who is contracting who so both parties are aware of the GST outcomes.
If the clinic contracts the health practitioner to provide services to the health clinic’s patient:
the supply by the health practitioner to the clinic will not usually be GST-free except in specific situations – see Supply of services through a third party
the supply of the health practitioner’s services by the clinic to the patient will be GST-free if the requirements of medical services or other health services are satisfied.
If the health practitioner contracts the clinic to provide rooms and administration services to the health practitioner:
the supply of the rooms and administration services by the clinic to the health practitioner are not GST-free
the supply by the health practitioner to the patient will be GST-free if the requirements of medical services or other health services are satisfied"
Still confused after all that information? Join the queue because I am too :)