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Your guide to the questions at the heart of the millions
Dollars legal between Healius and the tax office.
In recent years there has been a legal battle between the general practitioner
Company Healius and the Australian Tax Office are up and running
through the courts.
It is of interest to many doctors because it appears to be related
on a subject that is associated with many emotions for medicine
Job.
When GPs sign up for a company, they are customers
The facilities and services required to practice their are offered
Vocation – for example, the medical center that
Administrative staff, the nursing staff?
Or are they actually part of the commercial infrastructure used?
by the company to operate and attract its medical centers
Patient?
It is important to emphasize that the real legal issues at stake
The heart of Healius' struggle is a little more monetary
Nature.
What did Healius buy?
The courts were asked to decide whether the historic
Advance payments by the operator of the medical center to his doctors
were of a capital nature and as such not deductible against theirs
estimable income.
And that is a complex area of tax law. It is known there without a doubt
to all, Healius (
formerly known as Primary Health Care
Limited) is in the field of development and
Operation of medical centers.
Doctors in the centers run their own practice,
but all the facilities and support services they need, including
The reception and billing service is provided entirely by Idameneo
own subsidiary of Healius.
Historically, the typical Healius arrangement should be used
populating its centers with doctors was to make a sale of
Practice certificate and an agreement on the provision of services.
Doctors who have made such arrangements in the past are usually in the past
agreed to conduct her medical practice from an Idameneo center
for an agreed period (usually five years) and received lump sums
run to several hundred thousand dollars.
Between June 2003 and June 2007 the Australian Income Tax Office (ATO)
assessed Healius' income on the basis of this flat rate
The expenditures were "capital or capital" within the
Importance of the Income Tax Assessment Act 1997.
This meant that Healius was not entitled to deduct the lump sums
against his estimable income, which leads to Healius being confronted
significantly higher tax claims.
Capital or not?
Healius appealed to the Federal Court of Australia and in 2019
it won at least initially.
The court examined the purpose of the lump sums and
found:
- The medical centers did not provide health services to them
Publicity. They ran a business providing a comprehensive
Offer of services and facilities for doctors at Idameneo
medical centers. - The doctors were the customers of the medical centers. The more
Doctors who were employed in the medical centers, the more so
these medical centers would be profitable for Idameneo and
ultimately Healius. - Although the doctors each have a sales contract, they have
did not sell her practice to Idameneo. Any doctor
continued to run her own medical practice at Idameneo
medical centers; and so it was the doctors who provided services
Patient. - The lump sums weren't capital, and so were those
Deductions claimed by Healius were available.
Reversal of fate
However, the ATO (to be precise, the tax commissioner)
appealed against this judgment to the entire Federal Supreme Court; and in a decision
handed down last month, the original decision has been reversed.
It is worth looking at the reasons for this.
Here, too, the question at the center of the appeal was whether
The payment of the lump sums to the doctors was duly referred to as
Capital (the general practitioner payments were part of the company
Infrastructure, along with its bricks and mortar?) Or for
Revenue.
According to the full court, the boss is, if not a critical factor
The determination of the nature of the flat-rate payments had to be examined
the advantage that Healius (as a taxpayer) wanted to secure for himself
Make payments.
This required a "practical commercial investigation" and a
"broad survey and precise control of the taxpayer
Activities, "said the court.
In direct contrast to the court's earlier decision, it was
took the view that the nature of the business Idameneo was running was not the case
correctly described as a service company for doctors.
The judges found it was much more than that.
The agreements with practitioners for which they were paid
Lump sums "were not designed to simply secure everyone
Practitioner as a customer of Idameneo ".
The precautions were essential to the doctor's operation
Centers because "they enabled Idameneo to control the path
These doctors ran their practices from the
(Centers) in all essential points except for the specialist
Make judgments on deployment
medical service".
In other words, the lump sums were more than just
Payments to secure GPs as mere customers.
"Essential to Business"
According to the court, each lump sum was a payment for the
Practitioner to: (a) cease operating an existing practice; (b)
Start of trading as part of an Idameneo medical center under that
required type of exercise; and (c) accept reluctance
Building a competing medical practice.
Securing the doctors' commitment in this regard was one thing
The court ruled that this was an integral part of Idameneo's business.
Along with the physical assets that make up every doctor
The center of the commitments was the commercial infrastructure
was then used by Idameneo to earn its income by dressing
Patients to his centers.
Hence the lump sums were capital expenditures; and
Consequently, the tax refunds requested by Healius were not
available.
Historical precedents
The full court distinguished earlier decisions in which
Customer protection expenses were considered deductible
from income.
One case cited was BP Australia Ltd v Federal Commissioner of
Taxation (1965).
In this case, BP has made agreements with the petrol station
Owners only sell BP gasoline.
Each owner agreed to mark their website as a BP website for the term
the agreement. BP paid each owner a flat rate and demanded that
Lump sums as allowable deductions.
It was held in this case:
- BP was already set up to provide gasoline when it came in
these agreements, and there was no need for the agreements in this sense
as part of its profit structure. The agreements weren't
Part of its infrastructure. In the BP market from
Operation it was necessary to follow the practices of the BPs
Competitors and conclude agreements with gas station
Owners to secure the sale of gasoline. - The payments were made within the framework of
- the cost of conducting income generating operations.
- These lump sums were therefore paid out to the income account and were
permitted as deductions.
Another case cited by the federal court was NAB v Commissioner
of Taxation (1997).
Here the NAB made a payment to the Commonwealth to secure that
exclusive right to be a lender under a housing program to the
Australian Armed Forces.
It was held in this case:
- The bank did not have to secure the contract with
Commonwealth to be in business. It already had that
Resources and funding options to support the
Loans. - The advance payment was only used to secure a bundle of loans
Contracts as part of NAB's business operations. - The payment was therefore made as part of the trade
Activities of the bank and thus a permissible deduction.
The current verdict
In short, BP and NAB paid for future habits
Idameneo paid for something that was part of his being
commercial infrastructure.
In the words of the federal court, "It wasn't enough for
Idameneo to build the centers and offer services to make it go
to build up the business of running the centers.
"Agreements had to be made with the medical profession
Practitioners to whom they would commit (Idameneos
Operating model … Without these obligations, there would be none
Companies."
Every time Idameneo paid a doctor a lump sum, it did
hence "maintaining the structure of his business" and
"Ensure that the required commitments have been met
run his business ".
Without this obligation of his doctors to lead theirs
In a medical center in Idameneo, the company would lack that
Very infrastructure needed to run the business.
Conclusion
There are a long number of jurisdictions that take this into account
Characterization of payments as income or capital expenditure.
As mentioned earlier, this is a complex area of tax law
At the time of writing, Healius had filed an application with the High Court of Australia
Application for special permission to appeal to the entire federal court
Decision.
The content of this article is intended to provide a general overview
Guide to the subject. Expert advice should be sought
about your particular circumstances.