Are you a medical practitioners or Doctors, or a medical student currently finishing your degrees in the medical school, chances are that the profession is a very financial rewarding career path, however, at the end of the the tax year, most of the medical practitioners or doctors would become frustrated about one thing, and one thing alone, that is how to not to pay too much taxes to ATO, and how to save those tax money to help the family to become more financially secure. Hence do come to EndureGO Tax, as we can help doctors to better prepare their tax return.
At EndureGo Tax, we are a CPA accounting firm located in Ashfield Sydney and Adelaide South Australia, we have a strong experience in helping the medical practitioners in minimizing their tax bill, and to ensure that their wealth is maximized while the tax bill is minimized.
Tax planning is a very important process which 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 on-going thing rather than an once off event. For example, doctors can choose to pay large super contributions every year, however, they need to be also cautions 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 protection of assets and reducing tax.
However, tax planning can become very complicated for doctors, especially when they run their own 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.
Most doctors are often confused 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 because they are usually either employees, in which case the rules are irrelevant because they are taxed on salary income, or they run their own practice, whether through a practice company or in their own name. Where a doctor runs their own practice, the income comes from thousands of sources, being all the patients seen during the year.
Given that the statutory personal services income rules do not usually apply to most of doctors, IT 2639 should be referred to when doctors consider the 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, 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 own account clearly generate personal services income.
The extent to which the income depends upon the taxpayer’s own skill and judgment
The more the income producing activities involve the exercise of the taxpayer’s own 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 the 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 ways 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 on 0410-829-900 to let us help you to save those tax dollars.