Structuring a Medical Practice for Optimal Tax Outcomes
Setting up a medical practice isn’t just about delivering excellent patient care, it’s a commercial venture that requires thoughtful structuring to manage tax liabilities, stay compliant, and avoid penalties.
Whether you’re launching your first clinic or restructuring an established group, understanding your legal and tax obligations is vital.
1. Employees vs Contractors: A Defining Decision
The choice between employing practitioners or contracting them is one of the most significant structural decisions you’ll make.
Employing Medical Practitioners
Pros
Greater control over scheduling and standards of care
Easier team cohesion and consistency in service
Cons
Full responsibility for payroll, leave, and super
Higher administrative and compliance costs
Contracting with Medical Practitioners
Pros
Lower overheads and fewer HR obligations
Flexible engagements with niche specialists
Cons
Less control over hours and patient engagement
High scrutiny from the ATO—misclassification can trigger PAYG(W) and super penalties
Tip: A written agreement isn't enough. You must align the working relationship with ATO contractor guidelines.
2. Service Entities: Administrative Backbone or Tax Risk?
Many practices use service entities to handle non-clinical operations like administration, billing, and property leasing. When structured correctly, they can be tax-effective. But tread carefully.
Best practice:
Fees charged by the service entity must reflect genuine market value for services rendered.
Avoid artificially inflating service fees to shift profits and reduce tax—this is a red flag for the ATO.
3. Superannuation: Lessons from the Moffet Case
The Federal Court’s decision in Moffet v Dental Corporation changed how super obligations are viewed for contractors.
Key takeaways:
Even if a doctor is a contractor, they may be deemed an “employee” for superannuation purposes.
Superannuation Guarantee (SG) liabilities may apply—even without a traditional employment arrangement.
Action point: Assess each practitioner relationship individually. If unsure, seek a legal opinion or tax ruling.
4. Payroll Tax: A Growing Compliance Minefield
Recent payroll tax audits and rulings have put medical practices under intense scrutiny.
What you need to consider:
Even independent contractors may trigger payroll tax under “relevant contract” provisions.
Review your state’s current revenue rulings, particularly in NSW, VIC, and QLD.
Watch for grouping provisions that may aggregate multiple entities for tax purposes.
5. PAYG Withholding Risks
Misclassifying practitioners as contractors when they should be treated as employees can result in:
Backdated PAYG(W) liabilities
Penalties and interest from the ATO
How to mitigate:
Follow the ATO’s employee vs contractor decision tool
Keep comprehensive records and contracts that support your classification
6. Owner-Practitioners and Profit Allocation
Owner-doctors often seek to split or redirect profits through companies, trusts, or family members. The ATO has taken a firm stance on such arrangements.
Compliance musts:
Align with the ATO’s Guidelines on Allocation of Professional Firm Profits
Avoid artificial structures intended purely for tax minimisation
Ensure any income distributed reflects genuine contribution and risk
Final Word
Establishing or restructuring your medical practice is not a one-size-fits-all exercise. The right approach depends on your goals, the size of your operation, your state’s regulatory environment, and the level of control you want over practitioners.
Working with experienced tax and business advisors, like Dolman Bateman, can help you navigate these complexities and avoid costly mistakes.
Disclaimer: The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. All content relates to the current financial year only. Future changes to tax laws, thresholds or administrative requirements may affect the accuracy or relevance of this information, so you should always confirm that the guidance remains current. While every effort has been made to ensure accuracy at the time of publication, Dolman Bateman accepts no responsibility or liability for any loss or damage arising from reliance on this information. You should seek professional advice tailored to your circumstances before making any financial or tax decision.
