Analysis · Updated July 2026
How payroll tax affects your dental practice's value
Payroll-tax exposure on contractor and associate arrangements can reduce a practice's value in two ways: as a contingent liability buyers price in, and by lowering the normalised earnings a valuation is built on. Buyers now scrutinise it closely in due diligence.
The issue, briefly
In recent years, state revenue offices have applied payroll tax to certain contractor and associate arrangements in medical and dental practices — treating payments to some practitioners as wages for payroll-tax purposes. Whether it applies depends on the specific arrangements and the state, and the position continues to evolve. This is a legal and tax matter for your accountant or a specialist adviser; below we focus on what it means for value.
Why it affects value — 1: contingent liability
If a practice has potential unpaid payroll tax for past periods, that's a contingent liability. A buyer's due diligence will surface it, and they'll either discount their offer, hold back part of the price, or require warranties. Unquantified exposure creates uncertainty — and buyers discount uncertainty heavily.
Why it affects value — 2: normalised earnings
A valuation is built on adjusted EBITDA — profit after the true, market-rate cost of clinical labour. If past arrangements understated that cost, correctly normalised earnings can be lower than the reported profit, which flows straight through to a lower valuation. A credible valuation reflects the real cost of delivering the practice's revenue.
What buyers look for
- How practitioners are engaged and paid, and whether arrangements have been reviewed
- Any correspondence, audits or amnesty participation with the relevant revenue office
- Whether the risk has been quantified and provided for
What owners can do
Get advice on your position early, quantify any exposure, and address it well before going to market — the same principle as every other value lever: buyers pay for certainty. If you're planning a sale, factor this into your preparation timeline, and get an independent valuation that reflects the true cost of labour.
Where this bites hardest
Unquantified exposure matters most when the valuation has to hold up to someone other than a willing buyer — see all valuation purposes. It comes up most often in a buy-in or buy-out, where an incoming partner is pricing a share of an exposure they may end up carrying — how much depends on the deal structure, which is a question for your adviser; in a family-law settlement, where both sides must be able to rely on the earnings figure; and in an ATO or CGT market valuation. Because we don't broker sales, normalising earnings downwards costs us nothing — which is precisely why the figure is defensible.
To see how a change in normalised earnings moves the value, run both figures through the practice value calculator.
Frequently asked questions
Does payroll tax affect what my dental practice is worth?
It can. Unresolved exposure is a contingent liability that buyers price in, and if past arrangements understated the true cost of clinical labour, normalised (adjusted) earnings — and therefore the valuation — may be lower than the headline profit suggests.
Why do buyers ask about payroll tax now?
Because state revenue offices have pursued payroll tax on some contractor and associate arrangements in healthcare, buyers and their advisers now routinely check a practice’s exposure during due diligence.
Should I get advice on my payroll-tax position?
Yes — this is a legal and tax question specific to your arrangements and your state. Speak to your accountant or a specialist adviser. We assess how any exposure affects value, not your tax liability itself.
General information only — not legal, tax or valuation advice. Payroll-tax treatment varies by state and by arrangement and continues to change; confirm your position with a qualified adviser or the relevant state revenue office.