Medical practitioners commonly put in long hours to earn a living. If you are a doctor, you are likely to be a high earner. But the unique skill-set and high-wealth status of a medical practitioner does not protect them from losing money. Neither does it hide them from tax audits.
Many doctors operate as sole traders. They are specialists who provide their services to patients through hospitals, clinics, and in private practice. If this is your situation as a medical practitioner, then you are likely to be managing your doctor’s tax deductions and overall tax strategy through a service trust arrangement.
But is this structure managing your funds in such a way that you are getting the most out of your Australian trust tax rate? Many doctors are actually paying unnecessary tax simply as result of poor tax planning.
Here is an example of how a medical practitioner might handle their doctor’s tax deductions through a service arrangement with a trust:
There are typically two reasons for a medical tax accountant to suggest creating a trust to handle expenses:
As a doctor who operates with a service trust arrangement, you can also claim a deduction for the service fees and charges you pay to the trust as expenditure incurred in the conduct of your business.
Since the service fees and charges paid to the trust are tax deductible, there have been some concerns about the size of the mark-up doctors are charging their patients in order to cover these fees.
The tax office, especially in a landscape of increased ATO tax scrutiny, wants to ensure that you have an "objective commercial explanation" for your service charges and fees and the resultant mark-up, since in effect the fees and charges you are trying to cover by charging more for your doctor’s services are being paid to an entity of which you are a joint beneficiary, or to which you are beneficially connected.
It’s a matter of missed opportunity.
If you are a medical professional, then a reliable medical tax accountant will ensure that your mark-up and the service charges and fees are well-documented and explicable. This can help you mitigate the risk or the consequences of an ATO tax audit.
However, many tax accountants lack the acumen of experienced virtual CFOs and business advisors who can not only limit the risk of a tax audit, but also reduce your tax payments.
Can Dr Wise move more of his income into the Wise Family Trust and make a significant saving under the lower trust tax rate?
This is the benefit of a service trust agreement that many medical practitioners and their tax accountants have not considered. These doctors wind up losing money by paying more tax than they should.
If you are a doctor, then it is important to consider how much of your income, expenses, and profit can be held by the beneficiaries of the trust in order to attract a lower trust tax rate. Far too many doctors are enduring a high personal income tax rate on far too much of their income. By considering how you can manage moving more of your income into your trust and also wisely manage the mark-ups you charge to cover the trust’s service charges and fees, you are giving yourself the opportunity to save potentially thousands of dollars a year in tax payments.
Calibre has the expert team with broad-ranging medical tax accountant experience to give you the right balance in your tax structure. Contact us to learn if you could be saving a considerable amount of money as a doctor by adjusting your service trust arrangements.
Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.
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