As a medical professional in Australia you generally are classified as a high-income earner and as such, the rate of tax applied is also high with almost half of earned income going to tax.
For doctors who are also in business this can be extremely frustrating because you are not eligible for the 30% tax rate on 'personal services', which leaves you with a marginal tax rate of up to 46.5%.
Our specialist accountants and tax advisors at Clarke McEwan can outline for you some of the many options from which to choose to make sure your income is protected through legal and easy to manage methods.
There are some easy and effective ways to reduce tax if you are a Medical Practitioner or a Medical Practice business owner. A consultation with us can help you determine which method is the right one for your lifestyle, needs, employment or business.
To give an idea of some of these are methods, we've compiled a list of the more common yet often overlooked allowable tax minimization strategies geared specifically to medical practitioners.
Specialised tax deductions
Most practitioners will know that allowable deductions are the expenses incurred in producing income. In Australia once these allowable deductions have been applied to assessable income, what remains is your 'taxable income'. Basically, if the cost was paid in the medical practice of your profession, you can make a tax deduction claim by maximising your "allowable deductions". Some of these deductions may include:
- Medical supplies, equipment, medicines and materials
- Education – as long as it is relevant and/or related to your current employment or income
- Professional subscriptions, accreditations, memberships and literature
- Computer and office equipment
- Professional Indemnity Insurance.
At Clarke McEwan we have tax bookkeepers who can assist you to maintain an orderly record keeping system either electronically or manually that clearly indicates your expenses for the year. This will make reviewing your expenses easier, reducing accounting fees and eliminating those ambiguous claims which could lead to an audit by the ATO. For further information, refer to our post about outsourcing your bookkeeping.
Transitioning to retirement | Early retirement
Doctors over the age of 60 can consider beginning the process of transitioning into retirement in the form of a pension that uses money from your super fund.
Specialised business structures
A legitimate business structures in the medical field is legal as long as you thoroughly follow the rules, regulations and guidelines. Advice from your accountant or business adviser is critical to pass an audit from the ATO.
If you are thinking of undertaking one of these business structures contact Clarke McEwan. We specialise in the medical sector and understand its unique landscape.
Use of a Service trust
This arrangement allows doctors to distribute some of their income to family members who work within the practice. For example, a partner who maintains the books or manages administration within the business. As they have a lower marginal tax rate, they can be paid a moderate salary.
Use of an Investment trust
This business structure is set up so that medical professionals don't have to buy their assets in their own name. They can also distribute income and capital to beneficiaries such as a partner on a low or income. Beneficiaries can also be companies, of which operate to store the income generated from the medical practitioner's. However this income excludes personal services income earned specifically by the doctor.
To make sure that you have the best structure in place to legally minimise tax and grow your wealth, we highly recommend you get appropriate advice before putting them in place. Again, proper consultation and prudent counsel will ensure your structure is completely legal. Without advice, these set ups can leave your business vulnerable, or to appear out of line with the Australian Tax Office's legalities.