When looking at structuring your practice, it is important that you receive tailored advice for your specific circumstances. It is also ideal to have a general understanding of key topics, so below we have compiled together some information based on common questions we are asked.
- What structure provides you the most protection?
- What is a Service Entity/Trust and do I need one?
- How should I structure my personal investments?
- Should I have a Self Managed Superannuation Fund?
What structure provides you the most protection?
The structure you operate your practice through will depend on your individual circumstances. If you are able to operate your practice through a company it will provide you with some advantages including a level of limited liability protection. From a tax perspective, even though your practice fees may be being received through a company, this type of income is still known as ‘Personal Services Income’ (i.e. income from your personal work and exertion) and taxable to the individual who is performing the work. In other words, you would be considered an employee of the company and receive a wage.
What is a Service Entity/Trust and do I need one?
A Service Entity is generally setup up by practitioners who run their own rooms. They hold practice equipment/assets, employ staff, administer the practice and incur all business expenses.
The primary reason for having a Service Entity is asset protection. Having appropriate structures that minimise risk and isolate assets from the practitioner are prudent for business planning. A Service Entity is typically setup as a discretionary trust (although they can also be unit trusts or a partnership of trusts).
The concept is that the practice entity/practitioner pay a market value fee (i.e. at commercial rates) to the Service Entity for the services provided (generally in excess of the costs incurred). The fees paid by the practice entity/practitioner are a tax deduction to them and assessable income to the Service Entity. As such, any profits derived from the business of the Service Entity can be distributed at the trustees discretion, usually to members of the family group in the most tax effective manner available.
How should I structure my personal investments?
Practitioners are often concerned about protecting their personal assets. As such, if you are looking to buy a family home, your best option would be to put this into your spouse’s name, pending their own asset protection concerns. For other passive investments you may wish to consider using a discretionary trust to hold these assets as a holding entity.
Should I have a Self Managed Superannuation Fund?
Self Managed Superannuation Funds (SMSFs) are useful for those that wish to have more control over their investments in superannuation. Items to consider are the flexibility available, the time involved in managing the fund and the annual cost. Personal circumstances are generally a driving factor in this decision. As Limited Australian Financial Services Licence (AFSL) holders we can discuss you personal circumstances and objectives with you and make a recommendation as to whether a SMSF would be appropriate for you.
To avoid unforeseen difficulties and losses, it is important to have the right structure in place. BLG Business Advisers will only ever provide you with tailored services and solutions that are based on your unique situation.
Receive the right information for your practice by getting in touch online or calling (02) 4229 2211 to discuss your situation and requirements.