Accounting For Medical Specialists – Deciding On A Practice Structure
Owning your own private practice means that you are not only a doctor, but also a small business owner. One of the most important decisions you will have to make is deciding on a business structure for your practice. The structure you choose will have implications for your business registration, tax treatment and ongoing management of the practice.
Four of the most common options for structuring your medical business and their implications are outlined below. It’s important to understand each structure and how it is organised in terms of income, expenses and the role of each entity.
This is one of the most straightforward structures available to doctors. As a sole trader, you see patients and earn income, setting up the business in your own name. You are personally responsible for paying tax on this income, after lodgement of individual tax returns and/or business activity statements. The key benefits of this type of structure is that it is simple to set up, easy to manage and cost effective.
An incorporated medical company receives patient fees and pays business related expenses, with the remaining profit being paid to the doctor as a wage plus 9.5% superannuation guarantee. The company is required to register and pay workers compensation, as well as paying a monthly PAYG to the ATO on the doctor’s wage. Note that incorporating your medical practice carries no protection against patient litigation and that no profit can be retained in the company.
A discretionary trust is a separate entity set up to receive patient income and pay business expenses, with all profit paid to the doctor as a wage or a trust distribution. Similar to a company, the trust is required to pay monthly PAYG taxes to the ATO on doctor wage plus superannuation. However, unlike a company the trust is not a separate legal entity and it is difficult to split income to non-doctor spouses. While it may be more complex to set up than a sole trader structure, the trust can provide doctors with a number of wealth creation strategies if set up correctly.
A service business is a separate entity that provides administrative support to the medical practice. Generally, the medical practice will receive patient fee income and pay expenses including doctors’ wages, superannuation, PI insurance, memberships & registrations and work related travel, while the service business will receive a service fee and pay expenses including practice costs, lease costs, equipment and all other wages. It is possible for the service entity to earn a small profit which can be split with related parties (i.e. non-doctor spouses). The key benefit of using a service business is that it is flexible and provides asset protection by isolating business risks from the individual doctor.
It’s important to remember that each structure attracts different associated risks and tax consequences, and that what is right for your practice will depend on your personal circumstances. Planning ahead and using experienced advisors to assist you with establishing the right structures will help save you time and money (and your sanity!) in the long road.
Should you have any questions in relation to the above, or your medical business in general, please contact Maree Macphail on 02 9283 1666.