GP practice compliance and contracts: frequently asked questions
The compliance and contract issues most likely to disrupt a GP practice sale are missing or expired GP service agreements, unresolved payroll tax exposure, short or unassignable leases, and gaps in regulatory documentation. Most of these are avoidable with preparation. None are straightforward to resolve once a buyer has found them during due diligence.
What is a facilities and services agreement and why does it matter for a sale?
A facilities and services agreement is the contract between the practice entity and each independent GP who consults from the practice. It documents the service fee structure, scope of practice support, notice periods, termination provisions and how Medicare billings are collected and disbursed. If agreements are missing, expired, unsigned or poorly drafted, the buyer has no enforceable basis for revenue continuity after settlement. Buyers’ legal advisers check agreement currency as a standard due diligence step.
Further reading: Facilities service agreements: the missing contracts
What happens if my GP service agreements are expired or missing?
Expired agreements create ambiguity: the buyer cannot rely on the terms and must assume any GP could leave without contractual constraint at any time. Unsigned or missing agreements are treated as non-existent. Neither provides a basis for novation on sale, so the buyer must negotiate individually with each GP to continue post-settlement. Any GP who uses the ownership change to renegotiate or depart creates a revenue gap the buyer will price in or treat as a purchase condition.
Further reading: Facilities service agreements: the missing contracts
What is a novation clause and why do I need one in my GP contracts?
Novation replaces one party to a contract with another, transferring both rights and obligations with the consent of all three parties: seller, buyer and the GP. A novation clause in a GP service agreement allows the buyer to step into the seller’s contractual position without negotiating new individual agreements with each GP. Without a workable novation clause, the buyer must obtain each GP’s individual consent, giving GPs leverage to renegotiate or exit.
Further reading: Facilities service agreements: the missing contracts
Are GP contractor payments subject to payroll tax in Australia?
Following Thomas and Naaz Pty Ltd v Chief Commissioner of State Revenue [2021] NSWCATAD 259, payments to contracted GPs can constitute taxable wages under state payroll tax legislation. The NSW Court of Appeal dismissed the final appeal in March 2023. Revenue offices in other states are expected to apply the ruling to comparable arrangements, though jurisdictional responses vary and continue to change. Practices should obtain current advice from an accountant or lawyer familiar with state-by-state positions before sale.
Further reading: Facilities service agreements: the missing contracts
What is the Thomas and Naaz decision and what does it mean for GP practices?
In Thomas and Naaz [2021], the operator of three medical centres in western Sydney was ordered to pay $795,292 in payroll tax after the Tribunal found payments to contracted GPs constituted taxable wages under the NSW Payroll Tax Act 2007. The NCAT Appeal Panel and NSW Court of Appeal upheld the decision. Unresolved payroll tax exposure from comparable arrangements transfers to the buyer on sale and is typically priced in or requires a seller indemnity.
Further reading: Facilities service agreements: the missing contracts
What is a payroll tax grouping error and how does it affect a sale?
A grouping error occurs when a practice operates through multiple related entities (separate companies for the building, staff and individual GP contractor arrangements) but fails to treat them as a single employer for payroll tax purposes. State revenue law groups entities that share the same owner or controlling person, or that share staff, and applies the payroll tax threshold to their combined wage bill. Back payments can cover several years. Buyers discount for unresolved grouping exposure or require seller indemnities.
Further reading: Facilities service agreements: the missing contracts
What lease terms do buyers require before proceeding with a GP practice purchase?
Buyers and financiers typically look for at least three to five years of remaining lease term at settlement, with options beyond that. Leases of three years or less increase the risk that the business will need to relocate or renegotiate from a weak position soon after purchase. Short or expiring leases can reduce borrowing capacity or trigger additional finance conditions. Practices planning to sell should confirm remaining term, options and assignment rights well before any sale process begins.
How does related-party rent affect my practice valuation?
If the practice pays rent to an entity controlled by the owner, that rent must reflect fair market rate. Above-market rent suppresses reported profit and is added back in normalisation, reducing the stated cost but requiring documentation with independent evidence. Below-market rent overstates sustainable earnings because the buyer will pay market rate, requiring a deduction. Related-party arrangements attract heavy scrutiny during due diligence. Any deviation from market rate must be supported by an independent commercial valuation.
What is PCG 2025/5 and does it affect how I structure my practice income?
PCG 2025/5, published by the ATO on 1 December 2025, sets out the Commissioner’s compliance approach to Personal Services Income structures and how the Part IVA anti-avoidance rule applies. It targets arrangements where practice income is retained in entities at below-market tax rates, distributed to non-working relatives, or diverted without commercial justification. Passing a Personal Services Business test does not provide immunity from Part IVA action. A transition period runs to 30 June 2027.
What compliance documentation should I have in order before starting a sale process?
Before beginning any sale process, a practice should have: current signed facilities and services agreements for every practising GP with working novation or assignment clauses; AHPRA registration certificates for all practising GPs; a documented payroll tax position by state; PSR audit history and resolution status if applicable; current WHS policies and training records; and evidence of current RACGP or AGPAL accreditation. Compliance gaps discovered during due diligence are resolved on the buyer’s terms, not the seller’s.