When setting up your allied health practice as a business, consider your business structure with Sinclair + May.

The way you structure your business will affect registration procedure, your income and accessibility to that income, the safety of your personal assets, continuation of business if there is a change in ownership, and the way you are taxed.

Sole Trader:

As a sole trader essentially you and your business are one – your business does not have a separate legal identity.

  • You can use your own name as your business name, and set-up is inexpensive
  • Your profits are not subject to payroll tax.

However…

  • You are completely personally responsible for the liabilities of your business
  • Tax bills are less regular so must remember to save your tax as you earn
  • A healthcare professional acting as a sole practitioner is taxable on an individual basis – and likely to be taxed at a high rate.

Ways to claim deductions as a sole-trader:

  • Employ a spouse in the business to entitle the business to a deduction for a reasonable salary paid to the spouse
  • Contributions towards superannuation are tax deductible

Other tax advantages:

  • 50% capital gains tax discount on any capital gain
  • If the practice is small the professional can use Simplified Tax System (allowing cash accounting for income and expenditure), a simplified depreciation system is available, and a simplified treatment of trading stock is available
  • Your profits as a sole practitioner can be offset against commercial losses from another source.

Partnership:

A partnership allows the opportunity to combine professional skills with other professionals, to share profits, risks and losses according to the partnership contract. A partnership does not create a separate legal entity for tax purposes.

Tax advantages:

  • Profits and losses from the partnership flow to the partners who are then assessed individually
  • The partners are entitled to 50% CGT discount on capital gains that go to the partners (however watch for CGT when there is a change in partnership).

The contract directs how the business will function – speak to Jess/Sinclair + May about drafting or prior to signing an already drafted contract. It is necessary the contract is a solid foundation that diverts possible future conflict between partners, and encourages your business to prosper.

Company:

The ATO accepts incorporation of Allied Health Service businesses as long as the purpose is not to divert the income from personal services of the professional practitioner/tax avoidance. There are some advantages to incorporation…

  • There is some level of limited liability – however this depends on the nature of the claim (if there is a failing on a professional level, corporate limited liability does not usually apply)
  • You will be required to pay income tax monthly which can be an advantage when budgeting.

However:

  • All profits must be paid to the provider by wages or superannuation, and so Payroll tax therefore applies
  • There is a significant cost of establishment, and annual compliance and regulatory costs apply
  • The company cannot hold investment property but can have its own assets for conducting professional practice
  • Income must be distributed to the health care professional and not to be retained in the company.

Trust:

Like a company, a trust is also a separate legal entity. A trust holds property or income, and is managed by a trustee. Having a trust separates control and ownership, and again provides some personal liability protection.

  • The trustee is responsible for distributing income to the beneficiaries of the trust and completing the administrative duties
  • The beneficiaries are then taxed as per personal income and provisional tax rules (likely a high tax rate)
  • Can distribute trust income to beneficiaries including family members – but Personal Services Income/anti-avoidance tax measures may apply.

Again, having the right trust deed in setting up your trust is crucial.

Income splitting and the anti-avoidance provisions in the Income Tax Assessment Act:

You may want to consider setting up a service company or trust to provide non-professional/administrative support to your Allied Health Practice company or trust.

  • This company or trust would employ secretarial and clerical staff necessary to the health practice
  • You can employ yourself in this company for a proportion of your time (to carry out administrative duties such as management, record keeping, recruitment, and so on)
  • The income of this company or trust would come from a service charge to the main practice
  • This company would not usually have any taxable income, as it would charge the health practice only for any costs incurred.

To get in touch with one of our lawyers, you can book a free 15 minute chat here.

This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation. 

Published Feb 13, 2018