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The 10 Key Elements In Tax Planning for Doctors

Are you a medical practitioner or doctor, including medical students nearing the end of their degrees? While the medical profession can be financially rewarding, the challenge often lies in optimizing tax returns. At EndureGO Tax, we understand the frustration of minimizing tax payments to the ATO and redirecting those savings for your family’s financial security. Come to us for expert assistance in preparing tax returns specifically tailored for doctors.

Located in Ashfield, Sydney, and Adelaide, South Australia, EndureGo Tax is a CPA accounting firm with extensive experience in assisting medical practitioners. Our goal is to help doctors minimize tax bills, ensuring their wealth is maximized while keeping tax liabilities to a minimum. Trust us to navigate the complexities of tax returns for doctors and enhance your financial well-being.

tax returns for doctors

How to minimize tax for doctors

Tax planning is a very important process that considers income implications and other tax matters. It is even more important for doctors due to their highly professional occupation and income position.

Tax planning occurs constantly throughout a doctor’s career and it should be an ongoing thing rather than a once-off event. For example, doctors can choose to pay large super contributions every year, however, they need to be also cautious of the excess super contribution which might be a flow-on effect from their large salaries working at several places.

The primary purpose is to ensure a financially secure retirement, but like most strategies, there are secondary purposes such as the protection of assets and reducing tax.

However, tax planning can become very complicated for doctors, especially when they run their practices using different business structures. And when it comes to tax planning, one very important aspect that doctors need to understand is the difference between personal service income and personal service business. Here we discuss below mainly several ATO rules and IT 2639 which are related to personal service income and personal service business.

The statutory personal services income rules apply where the entity derives 80% or more of its income from one source and the ATO has not determined that the rules should not apply. The purpose is to attribute personal services income derived by a company or a trust to the individual and prevent deductions being claimed that would not be allowable had the income been derived as an employee.

negative gearing

Most doctors are often confused by the statutory personal services income rules with the rules for practice companies and trusts. However, the statutory personal services income rules do not usually apply to most doctors. They are usually either employees, in which case the rules are irrelevant because they are taxed on salary income, or they run their practice, whether through a practice company or in their name. When a doctor runs their practice, the income comes from thousands of sources, including all the patients seen during the year.

Given that the statutory personal services income rules do not usually apply to most doctors, IT 2639 should be referred to when doctors consider tax planning.

According to IT 2639, if the practice company or trust has at least as many non-principal GPs as principal GPs, then income is considered to be derived from the business structure.

Where the above is not the case, the following factors need to be considered:

The nature of the taxpayer’s activities

The activities of salary and wage earners and professionals practicing on their accounts generate personal services income.

The extent to which the income depends upon the taxpayer’s skill and judgment

The more the income-producing activities involve the exercise of the taxpayer’s skill and judgment the more probable it is that the income will be derived from personal services rather than from the business structure.

The extent of the income-producing assets used to derive the income

The more substantial the income-producing assets employed within a practice the more likely it is that the income of the practice will be derived from the business structure rather than from the rendering of personal services.

The number of employees and others engaged

The more substantial the number of employees, practitioners, or technicians used in a practice the more probable it is that the income is derived from the business structure rather than from the rendering of personal services.

If the income is deemed as personal service income, the profit cannot be retained and must be distributed to the individuals for tax purposes.

Compared to company and other structures, trust-based structures might be the simplest and easiest way to run medical practices, minimizing accounting costs and administrative time, maximizing flexibility, and achieving other significant advantages. However, if in doubt about a particular tax matter a private binding ruling from the ATO should be sought before entering into the transaction. This is the simplest and safest way of making sure your tax profile will be accepted by the ATO.

Saving tax bills for doctors or minimizing tax for doctors is what EndureGo Tax is good at, please give us a call at 0410-829-900 to let us help you save those tax dollars.