There is no single best way to structure a private medical practice from a business perspective. The most appropriate structure for your practice depends on your specific needs, and goals. This article explains the pros and cons of your major options.
The most common private medical practice structures in Australia
There are three common business structures for medical practices in Australia:
A company structure sets your practice up as a separate legal entity. The company pays tax at the company tax rate. This rate is currently 25% in Australia for companies with an annual turnover of less than $50 million.
A trust structure requires you to set up a legal entity where your practice income is held. The trust must have a trustee who is responsible for distributing the income to nominated trust beneficiaries.
A discretionary trust structure enables you to reduce the tax paid by your practice if you distribute the income to trust beneficiaries with lower marginal tax rates.
There is also the option to buy medical practice property through a self-managed super fund (SMSF). An SMSF is a type of trust that is taxed at the concessional rate of just 15% in Australia.
As you can see, the different structure options have different legal and tax implications. The table below lists the major pros and cons of each option, but it’s important to get professional advice to understand the implications of each option in more detail.
|Medical practice structure||Pros||Cons|
|Partnership||Inexpensive and easy to set up. Easy to add and remove partners over time.||May expose partners to higher tax obligations. Doesn’t protect partners assets from creditors.|
|Company||Lower tax rate than a partnership.Assets are more protected from creditors than in a partnership.||More expensive to set up and maintain than a partnership. More ongoing reporting and compliance obligations than a partnership.|
|Trust (including SMSF)||Discretionary trusts provide tax flexibility. Assets are more protected from creditors than in a partnership.||More expensive to set up and maintain than a partnership. More ongoing reporting and compliance obligations than a partnership.|
How we can help
If you are about to start a medical practice (or you currently have one and you would like to explore restructuring options), our professionals at Wilson Pateras in Richmond can help. Providing accounting and business advice for medical practices and medical professionals is one of our specialist services.
We can also help you with any other financial planning, tax or accounting services that you or your practice may need, including setting up and managing a self-managed super fund. We are a full-service accounting firm supporting individuals and businesses to achieve their financial goals.
Contact us today to find out more. We would be happy to set up an appointment to answer any questions you may have.