The short answer: Most psychology services are GST-free, income arrives as a blend of Medicare Better Access rebates (up to 10 subsidised sessions a year on a mental health treatment plan), private health and client gap payments, and the two things that trip practices up are reconciling bulk-billed versus gap sessions and correctly classifying associated psychologists as employees or contractors.
Key takeaways
- Psychology sessions are GST-free, but GST-free income still counts toward the $75,000 GST registration threshold, so a busy practitioner can be required to register even while charging clients no GST.
- Registering for GST, even voluntarily, lets you claim back the 10% GST on a practice service fee and other business costs while your client sessions stay GST-free, which is why some practitioners register before they strictly need to.
- Better Access gives clients up to 10 Medicare-subsidised sessions a year, with a higher rebate for clinical psychologists than for registered psychologists.
- The reconciliation headache is splitting each session into the Medicare benefit and the client gap, not treating them as separate income.
- Associate psychologists working in your rooms under your systems are usually employees, which brings PAYG, super and payday-super obligations.
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Is psychology GST-free?
Yes. Psychology is a listed health service, so a session is GST-free when it is performed by a recognised professional (a registered psychologist) and is generally accepted as necessary for the appropriate treatment of the patient. The important words the ATO uses are recipient of the supply: the service is GST-free only when it is supplied to the patient being treated. Supply something to a third party instead, such as a medico-legal report for a lawyer or insurer, a court-ordered assessment, or corporate EAP or training work, and that supply is usually taxable. A point many practitioners miss is that your GST-free session income still counts toward the $75,000 GST turnover threshold, so a busy sole practitioner can be required to register even when every client session is GST-free.
Should you register for GST? The service-fee question
This is one of the most common questions psychologists ask, and the answer is more interesting than most expect. Because sessions are GST-free, the instinct is to never register. Two things make early registration worth a serious look.
Registration does not add GST to your client sessions. A GST-free supply stays GST-free whether or not you are registered, so clients never pay 10% more. And unlike input-taxed supplies, GST-free supplies are still "creditable", which means once you are registered you can claim the GST back on what you buy to run the practice.
Then there is the service-fee model. Many psychologists work from a practice that charges a service or facility fee for rooms, reception, software and billing. That service fee is a taxable supply from the practice to you, with 10% GST on top. If you are not registered, that 10% is a dead cost. If you are registered, you claim it back as an input tax credit, along with the GST on software, equipment and other costs, while your client sessions stay GST-free. That is the argument for registering before you strictly have to.
| Feature | Direct sole trader | Under a practice service fee |
|---|---|---|
| Who bills the client | You, directly | You or the practice, per the contract |
| GST on client sessions | GST-free | GST-free |
| Service or facility fee you pay | None | Taxable: 10% GST on the fee |
| Can you claim that GST back? | Not applicable | Yes, if you are registered for GST |
| Overheads and admin | All on you | Shared, in exchange for the fee |
| ATO classification risk | Lower | Higher: a poorly structured arrangement can be reclassified to employment, bringing PAYG and super |
A quick example. Say a practice charges a 30% service fee and you run $120,000 of GST-free sessions through it. The service fee is $36,000 plus $3,600 GST. Registered for GST, you claim that $3,600 back, plus the GST on your software and other costs, with no extra cost to a single client. Not registered, that $3,600 stays gone. Over a few years that is real money for doing one form. Registration is not automatically right for everyone, since it adds a quarterly BAS and the benefit is smaller when the service fee or your taxable costs are low, so weigh it against your own numbers. See our allied health bookkeeping and BAS lodgement pages for how we handle it.
Medicare Better Access explained
Better Access is the scheme most clients use. With a GP mental health treatment plan and referral, a client can claim a Medicare rebate for up to 10 individual sessions in a calendar year. The rebate amount depends on the practitioner: a clinical psychologist attracts a higher benefit than a registered psychologist. You can bulk bill (Medicare pays, client pays nothing) or charge a fee and let the client claim the rebate back, leaving a gap. Your books need to know which of those happened for every session.
| Session type | Who pays you | GST | What to record |
|---|---|---|---|
| Bulk-billed (Better Access) | Medicare, in full | GST-free | One Medicare receipt, no client portion |
| Private fee with rebate | Client pays full fee | GST-free | Full fee as income; client claims rebate themselves |
| Gap billing | Medicare + client gap | GST-free | Split the receipt: Medicare benefit + gap |
| Private health extras | Insurer via HICAPS | GST-free | Match HICAPS settlement to takings |
Bulk bill versus gap
The most common mess is a practice that records the full session fee as income and then records the Medicare benefit as a second income line. That double counts. The clean approach is to treat one session as one piece of income, made up of the parts that funded it. Reconcile Medicare against the Medicare remittance (which lands in batches, not per session), and reconcile the gap and private-fee payments against the bank feed. If those two never meet, it is almost always a timing gap, not missing money.
Software and Xero
Halaxy, Power Diary and similar tools run the diary, take payments and lodge Medicare claims. Keep them as the clinical and billing record and post a daily takings summary to Xero, split by payment method. Do not sync every appointment as an invoice; it inflates income and creates reconciliation work that never ends.
Contractors, employees and payday super
Growth usually means adding a second psychologist, and that is where classification bites. A psychologist who uses your rooms, your booking system and your brand, on hours you set, is generally an employee, which brings PAYG withholding, leave and super, and the Health Professionals and Support Services Award published by the Fair Work Ombudsman. From 1 July 2026 super must be paid every payday, not quarterly, at the 12 per cent super guarantee rate. Even genuine contractors paid mainly for their labour can be owed super, so get the arrangement checked rather than assumed.
| Test | Points to employee | Points to contractor |
|---|---|---|
| Control over hours | You set the roster | They choose their own hours |
| Tools and rooms | You provide them | They bring their own |
| Who the client belongs to | The practice | The practitioner |
| How they are paid | Set wage per hour/session | Invoice with their own ABN, own risk |
Medicare timing and remittances
Medicare pays in batches on its own schedule, not session by session, so your bank feed will never line up appointment by appointment no matter how tidy your diary is. Reconcile the total Medicare deposit against the Medicare remittance report, then reconcile gap and private fees against your card settlements. The most common false alarm in a psychology practice is an owner deciding Medicare income has gone missing when it is simply sitting in the next batch, a day or two away. Build your month-end around the remittance, not the calendar of sessions, and the panic disappears. It also pays to check the rebate actually received against the item billed, because a rejected or downgraded claim is easy to miss when you are only watching the bank balance rise.
Adding a second psychologist
The jump from a solo practice to two clinicians changes the books more than most owners expect. Rooms and software cost roughly the same, but wages, super, leave provisions and payroll compliance all appear at once, and your break-even climbs overnight. Decide before you hire whether the second clinician is a genuine employee or a genuine contractor, because that single decision drives PAYG withholding, super, WorkCover and leave entitlements, and getting it wrong is one of the most expensive corrections a small practice can face. From day one, use tracking categories in Xero so you can see revenue per clinician separately and tell quickly whether the second seat is paying for itself. As a rough guide, if an associate's total cost sits above roughly half of the revenue they personally generate, the margin on that seat is thin and worth a closer look at fees, hours or the caseload mix. The practices that scale smoothly, anywhere in Australia, are the ones that treated the second hire as a financial decision with real numbers behind it, not just a diary that looked full.
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Book a Free 20-Minute CallThe bottom line
A psychology practice in Australia is a GST-free service with a deceptively complex cash flow: Medicare in batches, gaps by card, private health through HICAPS, all for the same list of sessions. Record each session as one funded event, reconcile Medicare to its remittance rather than to your diary, and sort out employee-versus-contractor before you add your second clinician. That is the difference between books that reconcile in an hour and books that never quite balance.
References and sources
- ATO, GST and health: other health services (when health services are GST-free)
- ATO, GST and health: recipient of the supply
- ATO, working as an independent contractor
- ATO, GST and GST-free health services
- ATO, super for employers (payday super and the 12% rate)
- Fair Work Ombudsman, awards
- Department of Health, Better Access initiative