Healthcare practitioners and lump sum receipts
Recently, the ATO have released a document which provides clarity on upfront incentive payments made by healthcare centre operators to entice practitioners to operate in their centre.
Typically, these lump sum payments are classified by the healthcare centre as being consideration for a restraint imposed, for goodwill, or for other terms or conditions. They can be a combination of all three.
“The ATO has clarified that upfront incentive payments made by healthcare centre operators to practitioners are not capital receipts but ordinary income.”
These payments can be made to practitioners in the following industries.
The list is not exhaustive but consists of the most common occupations found in these centres:
- Doctors;
- Dentists;
- Physical therapists;
- Radiologists; or
- Pharmacists
The ATO has announced via their website that these payments are not to be considered a capital receipt (i.e. not classified as a restraint of trade by the ATO) but are ordinary income under ITAA 1997 s 6-5.
Therefore, the receipt is on income account and capital gains tax would not apply. This treatment would remove access to the CGT small business concessions for the practitioner.
The ATO formed this view because:
- the lump sum payment is an inducement for the practitioner to enter into the agreements to provide healthcare services from the healthcare centre;
- the lump sum is fundamentally connected to the practitioner’s provision of those services;
- in the alternative, the lump sum payment represents a profit or gain from an isolated transaction in the course of the practitioner providing healthcare services;
- the mere fact the payment is a one-off lump sum, or expressed to be principally consideration for the restraint imposed, for the goodwill or for the other terms or conditions, does not define it as having the character of a capital receipt, and
- there is no transfer of goodwill as:
- the third party operating the healthcare centre does not acquire the right to provide healthcare services from the practitioner;
- the practitioner does not cease to provide healthcare services
Our firm would be pleased to chat with you if you require any further clarification on this matter. Please do not hesitate to give us a call.
Norman Ruan
Accountant
T: 02 9984 7774
E: normanr@northadvisory.com.au
Martin van der Saag
Director
T: 02 9984 7774
E: martinv@northadvisory.com.au
“Classifying a lump sum payment as capital simply because it is one-off or labelled as consideration for goodwill does not make it a capital gain.”
About the author
Cayle Petritsch - Director & Wealth Advisor
Cayle Petritsch, Director and Wealth Advisor, works with our existing clients who have recognised the importance of business owners making strategic financial choices not only for their company, but for their personal finances too.
Cayle saw a great opportunity to expand North Advisory’s services into SMSF/superannuation, personal wealth management, asset protection services and other crucial personal finance facets that business owners need to consider.
His approach to wealth management allows you to receive highly personalised wealth advice. Working closely with Marius, Cayle understands the unique needs of every client, from their lifestyle and business goals to their retirement plans.
Key Takeaways
Lump sum incentive payments made to healthcare practitioners are treated as ordinary income by the ATO.
This means the full payment must be included in assessable income when received.
These receipts are not considered capital gains even if labelled as restraint or goodwill consideration.
Simply calling a payment capital doesn’t change its substance for tax purposes.
The ATO’s position is based on the connection between the payment and the services provided by the practitioner.
Payments that induce a practitioner to work from a healthcare centre are closely tied to income-producing activities.
Driven by our values
Effortless and Seamless
On-Boarding Process
Intuitive and Knowledgeable
Direct Expert
Access
Useful and Articulate
Financial
Reporting
Forward
Thinking
Compliance Solutions
Streamlined
Tech
Integrated and Automated
Frequently Asked Questions
What are lump sum payments to healthcare practitioners?
Lump sum payments are upfront incentive payments made by healthcare centre operators to entice practitioners (such as doctors, dentists, physical therapists, radiologists or pharmacists) to operate from their centres.
How does the ATO treat these payments for tax purposes?
The Australian Taxation Office considers these lump sum receipts to be ordinary income — not capital gains — meaning practitioners must include the full amount in their assessable income.
Why aren’t these payments treated as capital receipts?
The ATO’s view is that such payments are fundamentally connected to the practitioner’s provision of services and inducements to enter or continue agreements, rather than genuine transfers of goodwill or capital assets.
Can healthcare practitioners still apply capital gains tax concessions to these receipts?
No — because the payments are treated as ordinary income, practitioners cannot use capital gains tax concessions like the small business CGT concessions to reduce tax on these amounts.
What should practitioners do if they have previously treated these payments incorrectly?
Practitioners who have treated lump sum receipts as capital gains should consider correcting their tax position and may seek professional advice to ensure compliance with the ATO’s income treatment.
How are these lump sum payments often described in agreements?
They’re often classified as consideration for things like restraint, goodwill, or other terms/conditions (or a mix of these).
North Advisory’s Reviews 
On 
Flo Mitchell
4 weeks ago
Changed to this company in 2019 from former accountant and love their approach of organizing everything for me face to face with Xero set up plus being able to call as much as I need for set annual fee. They also picked up on something that was not done correctly by my former accountant and saved me $4k for this.
Timothy Cummins
A month ago
They the truly the best, Martin and Judy are so experienced, knowledgeable & professonal, also quite like speaking with Rose : ) all people are so lovely!
Michael Iera
2 months ago
Positive, Responsiveness, Quality, Professionalism, Value
Michael Iera
2 months ago
Excellent company in regards to service and professionalism. Very experienced in dealing with complex matters. Highly recommended.
Reach out we are here to help
Recognising the uniqueness of each business, we specialise in customised accounting services crafted to meet your specific needs and drive business growth.
Don’t hesitate to contact us if you’re ready to streamline your financial management with tailored solutions. Your business’s success is our primary focus. Fill in the contact form or call us to book an initial 30-minute chat.
Suite 6, 11 Oaks Avenue
Dee Why, Northern Beaches
NSW 2099
Australia