In the healthcare services industry, it is not uncommon for medical practitioners to operate from within healthcare centres that are owned and/or run by third parties.

Often when practitioners commence or continue to operate within these healthcare centres, they receive a lump sum payment from the centre operator.

These lump sum payments have been targeted by the Australian Taxation Office (ATO), with concerns these payments might be treated incorrectly as capital for tax purposes.

If you are a healthcare practitioner (such as a doctor, dentist, physical therapist, radiologist or pharmacist) and receive a lump sum payment from a healthcare centre operator, the payment is most likely not a capital gain. It is more likely to be ordinary income.

Some practitioners have mistakenly treated the payments as a capital gain and have then applied the small business capital gains tax concessions to reduce the capital gain, in many instances reducing it to nil.

The fact that the payment is a one-off lump sum, or expressed to be principally in consideration for the restraint imposed, for the goodwill or for other terms or conditions, does not define it as having the character of a capital receipt. In accordance with legislation, these lump sum payments will typically be ordinary income of the practitioner for providing services to their patients from within the healthcare centre. Therefore, practitioners are required to include the full amount of the lump sum payment in their assessable income and pay tax at their marginal tax rate.

For practitioners who have already treated the payment as a capital receipt, the ATO are offering to correct their tax position with reduced penalties if they contact the ATO and make a voluntary disclosure. If you believe that a prior lump sum payment you received was treated in this manner, we are able to assist you in this process.

If you are considering any arrangements that include a lump sum payment from a healthcare centre for commencing or providing ongoing healthcare services, please seek our advice before proceeding with the transaction. Contact Kristy Baxter or Angela Stavropoulos on [email protected] or 07 3023 1300.