Allied Health & Specialist Medical Practitioners, Medical Accountant Services
Are there specific challenges in providing business services to Medical Practitioners?
Bookkeeping Accountant Systems Established in Consultation With Your Tax Accountant
With medical centres we have seen that it is very important for the accounting and financial systems to be established correctly or reviewed and amended to be established in the best way.
It is for instance important to have bookkeeping established with the compliance and tax reporting in mind (and the ability to identify different financial aspects of the centre operations), as well as the administrative convenience of the centre management.
If this is done correctly we can identify and report at the compliance reporting level what income is medical practitioner income, and what income is administrative services income of the centre (from expenses of the medical practitioners). There is more flexibility with how you can manage the income tax liabilities of the administrative services portion of the businesses. The result can be that the tax liability of income derived by the admin centre, and the owners of this aspect of the centre, can be significantly lower than the tax on medical practitioner income.
Although the first line of defense is the medial practitioner professional indemnity insurer, since the collapse of HIH and the loss of such policies and lack of availability of replacement for some time in the market - there has been much greater interest in asset protection approaches at law.
There is the tension between tax effectiveness of holding geared assets in the hands of high income earning practitioners, and the resulting exposure of these assets to potential claimants.
Furthermore, the obvious approach of not placing assets in the hands of at risk owners (such as the medial practitioner) has, although being a common approach, been somewhat eroded in its effectiveness over time as a reliable protection from claimants against the practitioner.
This area is becoming more complicated as time goes on with more cases causing the safety of assets in associates’ hands to be questionable. We recommend as a result particular attention to this area and can work closely with qualified solicitor, Natalie Grima, from Ascendia Lawyers to assist you in this area.
We have seen a number of medical and allied health practitioners who can do more to protect their assets, some accumulated over many years, with some simple and effective strategies based on good legal advice. It is much easier and cheaper to get it right to start with, before you buy assets.
Even the family home in the partners name needs to be considered and reviewed due to the legal technicalities in this area.
What issues has Ascendia Accountants Noosa, Mooloolaba & Brisbane seen facing a business of this type?
Business Structuring of Your Medical And Allied Health Centre
We have see some medical centres and Allied Health Professional Centres not structured tax effectively, and as a result income being misrecognised as medical practice income and taxed at the highest rates.
Business Performance Benchmark Reporting
We find there are some practices that achieve quite different financial results to others, and that benchmarking the financial reports of your practice against comparative practices is often of benefit in considering how you are going.
What about Allied Health Professional Services Businesses, are there specific issues relating to them that differ from general medical practitioners?
Although the Professional Services Income requirements apply in this area they are different provisions and there are different approaches involved between for instance medical practitioners and allied health practitioners such as chiropractors and physiotherapists.
We have experience servicing clients in all these areas for many years and are up to date with the requirements in these areas.
Can you outline some of the technical tax issues I should be asking my Tax Accountant about - to make sure I am accessing all the opportunities I have as a practitioner in this area?
1. Should I use a company?
As a health practitioner you are aware that you are exposed to some personal liability for your own professional conduct, notwithstanding the business structure you use. Your professional indemnity insurance is obviously very important, as is understanding your legal position, in this regard.
A corporate structure is a relevant consideration in respect of liability. It can offer some protection to you and your business from the actions of other practitioners who operate in the same medical centre or practice, where without your own incorporated business, these other practitioner might otherwise be operating from a partnership in common with you.
In short a medical partnership exposes you to liability for the actions of professional partners whereas a company that you operate out of alone does not.
Potential benefits of using a company:
- Salary Packaging benefits including ensuring superannuation deductibility
- Profits from non-owner practitioners can be paid out as dividends to shareholders
- There can be various classes of Shareholders, which can be a benefit where there are profits from non-owner practitioner efforts.
- Professional practitioners can be brought into and out of the company with often less cost using the share registry of the company as opposed to partnership agreements.
- Corporate Identify can improve ease of transition to entirely new owners and perhaps increase value of a practice.
Potential Problems from Using a Company:
- Payroll Tax liabilities need to be actively minimised through how business income is retained by owners
- For a small practice ongoing costs of meeting the compliance requirements can sometimes be higher. This needs to be weighed against other financial benefits like some tax benefits as outlined above.
- Different laws apply to companies than partnerships or sole proprietorships and you need to understand these.
- To stop or 'end' a company you need to finalise accounts and payout net assets to shareholders and complete ASIC documents. A sole proprietorship you can just stop trading...
However we think you should get personal advice about the appropriate business structure that matches best your individual circumstances.
2. Is it worth getting advice about which business structure is best for my practice?
In our experience it is definitely best to spend some money on professional advice initially to prevent potentially costly mistakes.
We recommend you obtain this advice on your business structure from a commercial lawyer in conjunction with your tax accountant, not just one or the other.
This is because it requires professional practitioner knowledge across these professions to be able to fully advise you of the whole context of issues impacting. Accountants aren't the best to advise you on the potential liability you may personally confront for professional claims for instance. In fact Accountants are not able to advise on legal services. Also many lawyers are not the most knowledgeable about tax accounting matters...For instance: issues that may be relevant to your circumstances include:
- Professional liability matters,
- Property law (your assets),
- Asset protection / bankruptcy / creditors (including impact via claimants)
- Family law
As well as:
- Taxation and incentivisation of your business stakeholders.
3. Should a 'Service Entity' be used?
A service entity can be used in a medical or allied health practice and they offer advantages in many circumstances. You should be considering and obtaining advice on whether one is suited to your situation.
These entities (sometimes a company is used, sometimes a trust) will supply to the medical practitioner professional business (es) on a fee for service basis, services like:
- Administrative staff
- Management services
- Financial services
There are established guidelines on how these should operate which provides clear operating certainty for their use.
We are happy to review your current business structure and advise of there is sufficient financial benefit for your practice to utilise this approach.
We can also provide accurate estimates of the financial benefit involved and explain exactly how the approach can work for you, and how to establish it, the as well as assisting you to transition. It is not a difficult process in practice.
4. How do the 'Personal Services Income' (PSI) requirements impact on me (medical or allied health)?
There are general PSI rules that relate to all professional services businesses. These provisions are not relevant to a number of medical services practitioners.
Instead, for a number of health services professionals there are separate and specific requirements you must adhere to. To explain these we would need to advise in the context of your business and business structure.
Nevertheless, the way your banking and bookkeeping is undertaken during the year is very important so as to prevent inconvenient and surprising tax related to any need for your accountant to re-work these intra year treatments so as to assist you to comply with the requirements.
As a result we recommend you get your tax accountant to review your banking and bookkeeping approaches on a regular basis to ensure your approaches are up to date.
Taking a one size fits all approach or relying on general advice can result in you over or under paying significant amounts of income tax through the self-assessment approach. In the case of underpayment of tax, however inadvertent, you are likely to be identified and reassessed for more tax because of the close monitoring of this area by the ATO.
It is also a problem to overpay your tax - based on general advice such as include all income in your personal tax return (not quite right shall we say without reviewing your specific situation) -because besides reducing your personal disposable income and asset base this undermines the competitiveness of your practice, including your ability to re-invest and provide good service.
5. Am I using the best entity as a Medical Practitioner Subcontractor?
If you have a company you may not necessarily be gaining an advantage from it, and it may be costing you unnecessary compliance and accounting services fees every year.
Some medical practices in the past have insisted that subcontractors use a company structure - in the belief it reduced their liability for State Government payroll tax and other requirements such as State Workers Compensation Insurance such as Work Cover and also Employer Superannuation Contribution Obligations. This tactic is no longer necessarily effective. So you may be in a company for no good reason, no good for you and ineffective for the centre.
(For instance, the subcontractor provisions of the Office of State Revenue in Queensland mean that whether you use a company or not makes no difference to payroll tax liability, it is a legal issue as to what work your subcontractor does and how they do that work).
You may, for example, be able to explain this to your centre (or we can assist you in this regard), if a company structure is no longer appropriate for you, and we have found that in many of these situations the centre may be under no disadvantage if you cease trading as a company.
You are able to operate as an employee for instance, or a sole proprietor or partnership, which may be appropriate and is cheaper in tax accountant fees for you than operating as a company. However, there may be some benefit to you in using a company structure depending on your personal situation - so we suggest having the issue of your business structure reviewed periodically.
When we review business structures we recommend you work with both our Brisbane & Sunshine Coast accountants and also with Ascendia Lawyers, as lawyers can assist you to ensure the sub-contractor arrangements are actually delivering the value you and your centre think they are.
6. Is GST Applicable top parts of my income in my circumstances?
On the face of it NO, GST is currently not applicable to the provision of medical services.
However medical service businesses can incur GST remittance obligations in certain circumstances.
For example where there is a medical practitioner business which is the responsible practice for delivering the medical service to the patient, receiving the patient revenue it is delivering a medical service and the income is not Stable.
But if that business then subcontracts the actual patient service (the provision of patient service by a subcontracted Doctor's business) and has retained the receipt of the original income / ongoing ownership of the patient: the Doctor's business who saw the patient is deemed to be providing employment services, and their income is GSTable.
There are at least 2 other circumstances where GST is required to be remitted and may be claimed in some part of the operation of many Medical Services arrangements.
If you have any doubt about whether the services provided by any entity involved in your medical practice should be GSTable we suggest you contact us.
7. Is State Government Payroll Tax applicable to any part of my business entity?
If you are using subcontractor Doctors, under some arrangement you may be liable for Payroll Tax, notwithstanding their business structure (company or partnership) or whether they have an ABN, or that they have no employment agreement etc.
Similarly you may also be liable for Work Cover and Superannuation Employer Contributions in some circumstances.
We recommend you get advice from us on this area - we can quickly consider your situation and advise you. We can also assist you to take action to amend the situation and stop liabilities from continuing to accrue.
Contact our Sunshine Coast accountants Noosa, Mooloolaba or in North Brisbane for more information.