Medical Tax FAQs​

As taxation and business advisors to the medical industry, we are often asked similar types of questions from our clients. To assist you with some general information, we have compiled a list of frequently asked questions for your use as a handy reference guide.

Do I need to operate my medical practice through an entity such as a company or a trust? Or should I trade in my own name?

The choice of whether to operate a medical practice through an entity or in your own name will depend on your own specific circumstances and you should seek advice for your individual situation. While an entity, such as a company or a trust may provide some advantages, including some level of limited liability protection, in general the advantages will not be significant – especially where a sole doctor practice is concerned. 

As a guide, it is important to determine the tax treatment of the income that you earn so that you can understand how this will be impacted by any entities.  The most important issue with an entity is that it’s only worth having one if it cost effective and assists you in reaching your goals.  Be sure to get some advice about how this will best work in your circumstances.

Some of my colleagues have service trusts – what are they and do I need one?

Service trusts are typically discretionary trusts (although they can also be unit or even hybrid trusts) that are set up to hold valuable practice assets, employ staff and generally look after the administration side of the practice.  The trading entity pays a market value fee for the services provided and any profits can be distributed at the trustee’s discretion.

Service trusts are considered to be ideal structures for providing additional asset protection and they can also provide some ancillary tax benefits by allowing distribution of profits to a spouse or other family members.

What’s the big deal about self managed superannuation funds and do I need one?

Self managed superannuation funds (SMSFs) are considered useful for those people who want to take more control over their superannuation.  Also, for larger superannuation balances, the annual running costs of an SMSF may be less than those charged by a public offer fund.  While it is generally considered that you need at least $200,000 in superannuation savings to make a SMSF worthwhile, you should discuss the option of setting up an SMSF with your financial advisor.

I am concerned about asset protection – especially in relation to my family home – what can I do about this?

For most people, the family home is their most valuable asset.  Therefore, protecting this asset is critical.

If you are looking at buying a new family home, your best option may be to put this into your spouse’s name, subject to their own asset protection concerns. Alternatively, you might also consider putting it in a discretionary trust – but you need to be aware that this may preclude you from using the main residence CGT exemption on eventual sale.

If you are looking at protecting your existing family home, you might consider transferring ownership into your spouse’s name (subject to duty costs).  Alternatively, you may wish to discuss a “gift and loan back” arrangement with your legal advisor to determine whether it might be appropriate in your circumstances.

I’m looking at buying a new motor vehicle – should I be buying this in my business?

This decision is usually based on a number of different factors, including:

  • Type of vehicle – does it meet the Tax Office definition of a “car”?
  • Cost of vehicle
  • Likely level of work-related use
  • Your personal circumstances

Whether or not it is worth having the car in the business is determined by calculating the best deductions available in your circumstances.  Your accountant should be able to assist you with this process.  It is important to remember that there is no one answer for everybody - just because it is better for your colleagues does not mean that it is better for you. 

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