Running a Medical Practice (MP) is financially rewarding but sometimes can be challenging and frustrating to keep up with the ever changing tax legislations and financial models. There are many ways to minimise your tax liabilities and risks but the most important thing is to plan ahead of time before it is foregone or lapsed.
The following 5 key areas should be reviewed and revised on an annual basis:
Personal Service Income (PSI)
There is no doubt that many MPs first start to run their business as a sole trader or in another structure. It is important to identify if that fee and service you provide and receive is or is not subject to the PSI. If it is caught under the PSI, it could limit your deductibility on certain expenses and the net profit will be taxable under you as an individual. Otherwise, the net profit can be taxed differently and more business expenses could be included.
It is common practice that most MPs are employing contractors and associates to perform the work. Although these contractors and associates may have their own ABN or even are incorporated under a company structure, payroll tax could be applicable to the MPs if the contractors and associates have met a number of working conditions under the OSR provisions. The payroll tax is different to the PAYG withholding tax and is collected by the State rather than Federal Government. It is important to consult your advisor to determine if the payments made to your associates and contractors are subject to payroll tax as we have seen a few MPs been issued with fines by the OSR for not reporting the contractor’s payments correctly.
Different structures have different tax results. Effective tax structures can build up your wealth and minimise tax lability. For example, a ‘service entity structure’ can be incorporated to provide asset protection and separate the business risk between the trading entity and related assets. A specific ruling is applied for the service entity structure so it is best to consult your advisor to determine the structure suitable for your business model.
Investment and Loans
With the rapid changes in the financial markets and products, it is important to have your business and personal loan portfolios reviewed on a regular basis in order to minimise your borrowing costs but also to maximise your borrowing capacity for future business and investment opportunities. A significant savings in interest or having a flexible loan structure means that you are able to invest more back into your business or enhance your personal investment portfolio.
For practitioners who are already in the business and thinking of a succession plan, it would be equally important to conduct a valuation model on a regularly basis in order to monitor and compare your practice to the existing market benchmark. Often business owners will be surprised with the outcome values between their expectations vs what the market is willing to pay. Further-more by having a more transparent and updated valuation model could assist the potential buyers to speed up their decision making process.
At Linton Advisory Group, we have a team of experienced advisors in the medical area to walk and guide you through to succession from compliance to wealth management. We understand how the medical industry works and the benchmarking for the profitability. For those MPs who are looking for more than just compliance services, why not connect to us for a complimentary meeting (duration of 1 hour) to answer any questions that you have or would like to discuss, please contact our office on 02 9299 4520 to speak to our experienced business and tax advisers at Linton Advisory Group. Any information provided will be strictly confidential.