Updated: Feb 4
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 Psych in a Practise management arrangement where your earn a % of the appointment fee income and the workplace deducts the remaining % of the appointment fee income as an administrative services fee is a very common arrangement. There is some clear guidelines and information available on how to treat these arrangement 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.
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. Is you Business a Pty Ltd Company or Trust instead of a Sole Trader or Partnership?
If your Business structure is a Company or Trust then regardless of the contract between you and the workplace you will be required to include GST on all of 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 other workplaces 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 the 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 status of that GST Free medical service cannot be passed on to you (your Company is a "third party" supplier and according to the ATO "Medical and other health services supplied to any other third party are not GST-free" except for some very specific situations that don't apply in this situation). The company is also obviously not a person / not a registered health practitioner that can supply GST Free allied health services to clients.
However If your Business structure is a Sole Trader or Partnership then continue on to point 3 below.
3. Whose income is being earned in the workplace
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. 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.
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 :)