If you run a medical or dental practice on a service facility agreement, the question of superannuation for your practitioners is one of the most misunderstood, and most expensive to get wrong, parts of the whole arrangement. The short version: the label on the contract does not decide it. We handle the payroll and super side of this for practices, so here is the plain-English Q&A, with the legislation and the leading cases, and a checklist you can actually use.
What is a service facility agreement?
A service facility agreement (SFA), also called a service entity or service trust arrangement, is a contract where a practice entity provides the rooms, equipment, reception, administration and billing to a practitioner, in return for a service fee, usually a set percentage of that practitioner's billings. The idea is that the doctor or dentist runs their own business and the practice runs a separate facilities business, two interdependent businesses rather than an employer and employee.
That model is legitimate and common. The trap is assuming the paperwork settles the question. For superannuation and for payroll tax, what matters is the substance of the arrangement, how it actually works day to day, not just the words in the agreement.
The super question: section 12(3)
Superannuation has its own test, and it is broader than you might expect. Section 12(3) of the Superannuation Guarantee (Administration) Act 1992 deems a person to be an employee for super purposes if they work under a contract that is wholly or principally for their labour, even if they are not an employee under the common law.
So a practitioner can be a genuine contractor for most purposes and still be a deemed employee for super. That is the part that catches practices out. Calling someone a contractor in the SFA, and even having them agree to handle their own super, does not answer the section 12(3) question. The question is what the contract is really for.
The case that proves it: Dental Corporation v Moffet
The leading example is a dental one. In Dental Corporation Pty Ltd v Moffet [2020] FCAFC 118, a dentist sold his practice and stayed on under a services agreement. He was found not to be a common law employee, yet the Full Court of the Federal Court still held that the practice had to pay his superannuation, because the agreement was principally for his personal labour and his services could not be separated from the obligations he had taken on. An entity or company contracting on its own does not satisfy the labour limb, but here the substance was personal service.
The broader ATO position has moved the same way, through rulings such as TR 2023/4 on who is an employee, and related cases like Jamsek. The direction of travel is clear: many practitioners engaged principally for their personal labour will be covered for super. Read against your own agreement, that is the risk to test.
Who actually pays the super?
This is the part practices least want to hear. The obligation falls on the principal, the party receiving the labour, as the deemed employer. In a practice that is normally the practice entity, not the individual practitioner. A clause in the SFA saying the practitioner looks after their own super does not move the obligation if section 12(3) applies.
And the cost of getting it wrong is worse than just paying the super late. If super should have been paid and was not, the practice becomes liable for the superannuation guarantee charge (SGC), which includes the shortfall, interest and an administration component, and, unlike ordinary super contributions, the SGC is not tax deductible. A missed obligation compounds quickly.
What tips an SFA into (or out of) a super obligation
Every agreement is different, and this is genuinely fact-specific, but these are the factors that tend to matter:
- Can the work genuinely be delegated? A real, unrestricted right to subcontract or delegate the work can take a contract outside section 12(3). A right that exists on paper but never in practice carries less weight.
- Individual or entity? Contracting with a practitioner's company or trust, rather than the individual, can change the analysis, because a company does not provide labour of its own. This is one reason structure matters.
- Is it personal service? If the value the practice receives is essentially that specific person's labour, section 12(3) is more likely to bite.
- Does the reality match the paperwork? Rosters set by the practice, practice-controlled billing, and practitioners who look and operate like staff all point one way, regardless of the contract's heading.
These are questions for your accountant and a health law specialist to assess on your specific agreement. Our role is to make sure the bookkeeping underneath is clean enough to answer them.
The payroll tax link you cannot ignore
Super is not the only exposure an SFA creates. Payroll tax is a separate, state-based issue, and these arrangements have been squarely in the sights of the revenue offices. In Thomas and Naaz Pty Ltd, the NSW tribunal treated payments a practice made to doctors under service agreements as wages for payroll tax, even though the money came from the doctors' own Medicare billings. Commentators expect the reasoning to reach specialists, dentists and other practitioners, and the states have been reviewing these arrangements.
Super and payroll tax are decided under different rules, so an arrangement can be caught by one, both or neither. If you want the payroll tax side in detail, including where each state currently sits, see our guide to payroll tax by state.
Practical checklist: reviewing your SFA for super
A quick self-audit you can run before you get formal advice. If you are ticking "not sure" on several of these, it is worth a proper review.
| Check | Why it matters |
|---|---|
| Who contracts, the individual or their company/trust? | An individual contract is more exposed under s 12(3) |
| Is there a genuine, used right to delegate the work? | A real delegation right can take it outside s 12(3) |
| Does the practice set rosters, fees and billing? | Practice control points toward a deemed-employee finding |
| Are practitioner billings and the service fee cleanly separated in the books? | Clean records are your evidence if questioned |
| Has the agreement been reviewed since Moffet and Thomas and Naaz? | The law has shifted; old agreements may be out of date |
| Do you have super set aside in case an obligation is found? | The SGC is not deductible, so a surprise bill hurts twice |
Want to see how this fits the rest of your numbers? This sits alongside our dental practice bookkeeping and medical practice bookkeeping guides under who we work with, and for the records you will hand your accountant, see deductions and what to give your accountant.
Running a practice on an SFA and want the payroll, super and bookkeeping handled cleanly, alongside your accountant? Book a free call or email us at info@truetally.com.au, and we will make sure your records are clean and defensible.
Further reading (independent legal commentary): Sladen Legal on the Moffet dental decision, Holding Redlich on the reach of super to personal-service contractors, and Avant on payroll tax for medical practices.
Frequently Asked Questions
What is a service facility agreement (SFA)?
A contract where a practice entity provides rooms, equipment, administration and billing to a practitioner (such as a doctor or dentist) for a service fee, usually a percentage of their billings. The intention is two separate but interdependent businesses. Whether that holds up for super and payroll tax depends on the substance of the arrangement, not just the wording.
Do practices have to pay super to contractor doctors and dentists under an SFA?
Possibly. Section 12(3) of the Superannuation Guarantee (Administration) Act 1992 deems a person an employee for super if their contract is wholly or principally for their labour, even if they are not a common law employee. In Dental Corporation v Moffet [2020] FCAFC 118, a dentist who was not an employee was still covered. An SFA does not automatically remove a super obligation.
Who is responsible for paying the super under section 12(3)?
The principal receiving the labour, usually the practice entity, is the deemed employer and carries the obligation. A clause saying the practitioner handles their own super does not shift it if s 12(3) applies. If super was missed, the practice pays the superannuation guarantee charge, which is not tax deductible.
What makes a contract wholly or principally for labour?
Courts look at substance from the perspective of the party receiving the services. It is more likely to be for labour where the practitioner must work personally and cannot genuinely delegate. A real, unrestricted right to delegate can take it outside s 12(3), and contracting through a company rather than as an individual can change the analysis. It is fact-specific, so have it assessed.
Is payroll tax a separate issue from super?
Yes. Payroll tax is a separate state-based issue. In Thomas and Naaz Pty Ltd, the NSW tribunal treated payments to doctors under service agreements as wages for payroll tax, even though they came from the doctors' own Medicare billings. Commentators expect it to extend to dentists and specialists. Super and payroll tax use different tests, so an arrangement can be caught by one, both or neither.
How can a practice reduce the risk under an SFA?
Have the agreement reviewed by a specialist, make sure day-to-day reality matches the paperwork, keep practitioner billings and the practice service fee cleanly separated in your books, and keep clear records of how practitioners operate. Good bookkeeping is your evidence base. True Tally handles the payroll, super and bookkeeping side so records are clean and defensible, working alongside your accountant and lawyer.