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The Key Role of an Accountant in Setting Up and Managing Your Medical Service Trust
Medical Service Trusts (MSTs) are a popular structure for medical practitioners in Australia to provide healthcare services to their patients. This is because MSTs offer several advantages over other business structures, such as sole proprietorships, partnerships or companies.
One key advantage of using an MST is the ability to split income among beneficiaries. This means that the trustee can distribute income from the trust to family members or other beneficiaries who may be in a lower tax bracket than the medical practitioner. This can result in significant tax savings for the medical practitioner, as the income that would have been taxed at their higher rate is now taxed at the lower rate of the beneficiary. It is important to note that this income splitting must be done in accordance with the tax laws and regulations, and medical practitioners should seek professional advice to ensure they are compliant.
Another advantage of using an MST is the protection it provides from personal liability. By placing assets in a trust, medical practitioners can protect their personal assets in the event of legal action or bankruptcy. This is because the assets are owned by the trust, rather than the medical practitioner personally.
There are several types of trusts that can be used for providing medical services. The choice of trust structure will depend on the specific needs and circumstances of the medical practitioner.
Discretionary Trust: A discretionary trust is the most common type of trust used by medical practitioners to provide medical services. This type of trust allows the trustee to distribute income and assets to beneficiaries at their discretion. This means that the medical practitioner can distribute income to family members or other beneficiaries who may be in a lower tax bracket, which can result in significant tax savings. This is suitable for a practice with one doctor.
Unit Trust: A unit trust is a type of trust where the beneficiaries hold units in the trust. The income and assets of the trust are distributed based on the number of units held by each beneficiary. This type of trust is less flexible than a discretionary trust, as the distribution of income and assets is based on the number of units held. This is suitable for a practice with 2 or more doctors.
How an accountant can help you manage your Medical Service Trust effectively.
- Trust set up: The accountant can assist with the initial set up of the trust, ensuring that it is set up in compliance with all the necessary regulatory requirements.
- Tax compliance: The accountant can assist with tax compliance for the trust, including the preparation and lodgment of tax returns and the management of tax liabilities.
- Financial management: The accountant can provide financial management services for the trust, including budgeting, cash flow management, and financial reporting.
- Trustee duties: The accountant can advise on the legal obligations of the trustee, ensuring that the trustee is fulfilling their duties in accordance with the law.
- Distribution of income: The accountant can advise on the most tax-efficient ways to distribute income from the trust to beneficiaries, including family members and other medical practitioners.
- Asset protection: The accountant can assist with asset protection for the medical practitioner, ensuring that their personal assets are protected in the event of legal action or bankruptcy.
It is important for medical practitioners to work with an accountant who understands the unique challenges of managing an MST and has the expertise to provide the necessary support and guidance.
This blog has been prepared for the purposes of general information and guidance only. It should not be used for specific advice or used for formulating decisions under any circumstances. If you would like specific advice about your own personal circumstances, please feel free to contact us on 02 9411 5422. We can help make sure the right method is used to give you the maximum possible tax deduction associated with any of these methods.