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Ruling

Subject: PIP payment

Questions

1. Is the Practice Incentives Program (PIP) payment from Medicare assessable income?

Answer: Yes.

2. Are you required to deduct Pay As You Go (PAYG) withholding tax from the rural loading payment made to the employee doctor working at your practice?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

Each quarter, you (the Practice) receive a GST free PIP payment from Medicare. The payment has a number of components.

One of the components is a Rural Loading, which is distributed to doctors working at the Practice.

It is not a requirement of Medicare to distribute this component to the doctors.

The practice calculates the amount to be paid to each doctor based on the number of patients they attend to.

The rural loading payments are paid quarterly to the doctors.

According to the Medicare Australia website, the PIP was development to provide incentives that encourage accredited general practices to improve the quality of care provided to patients. The payments are calculated according to various aspects and activities carried on by the business. Practices may spend their payment as they wish.

The rural loadings are payable to a PIP practice depending on the geographical size of the region of the practice location and the remoteness of the practice. The rural payment is higher for practices in more remote areas, in recognition of the difficulties of providing care, often with little professional support, in small country towns or isolated communities.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5.

Taxation Administration Act 1953 Schedule 1 Section 12-35.

Reasons for decision

Question 1

Summary

The PIP quarterly payment to the practice is regarded as ordinary income from carrying on your business and is therefore assessable.

Detailed reasoning

Assessable income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has generally been held to include three categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Based on case law, it can be said that ordinary income generally includes receipts that:

· are earned,

· are expected,

· are relied upon, and

· have an element of periodicity, recurrence or regularity.

A government payment that provides income support for businesses or paid to assist with business operating costs is generally assessable under subsection 6-5(2) of the ITAA 1997.

In your case, the PIP payment is paid quarterly to your practice to help improve the quality of care provided to patients. The payment is paid according to various aspects and activities of your business.

The PIP payments are regarded as ordinary income from carrying on your business. Therefore the payments are regarded as assessable income under subsection 6-5(2) of the ITAA 1997.

Question 2

Summary

As the rural loading amount distributed to an employee doctor is regarded as an assessable allowance, the PAYG withholding provisions apply.

Detailed reasoning

PAYG withholding

The PAYG withholding provisions are outlined in Part 2-5 of Schedule 1 of the Taxation Administration Act 1953 (TAA).

Under section 12-35, subdivision 12-B of Schedule 1 of the TAA, an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee.

The rural loading amount paid to employee doctors is regarded as an assessable allowance. Therefore, the practice is required to withhold an amount from the payment made to an employee doctor. The amount withheld is determined in accordance with the PAYG withholding tax tables.

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