Tax planning is vitally important for your practice, to ensure you are not over-paying and are maximising the advantages. Tax planning can be different across industries, so we have assembled the key essentials specific for the medical profession.
- Superannuation Contributions
- Salary Packaging
- Other Income
Structuring is crucial for Doctors who are self-employed from a tax and asset protection perspective. Please refer to our article ‘Structuring Your Practice for Protection’ for more information on practice companies, service trusts and passive investment structuring.
Medical practitioners, like all business tax payers, can depreciate certain types of business expenditure as deductions. In some cases the deduction is available immediately.
This claim is not limited to medical equipment. If you own the building from which you conduct your business you may be able to claim a deduction for capital expenditure incurred in construction. You are able to obtain Quantity Surveyor reports to assist in this claim.
For the 2017 financial year the Small Business Asset Write-Off allows those businesses that are classified as small (under $10m turnover) to claim up to $20,000 in an immediate tax deduction for purchase of assets.
Self-employed or substantially self-employed practitioners are able to claim a deduction for personal superannuation contributions. Superannuation contributions for both employees and owners must be paid before 30 June to obtain a tax deduction in the same income year.
Superannuation contributions can be made by a practitioner up to the age of 75, however if you are over the age of 65 you must be considered ‘gainfully employed’ on at least a part time basis, which means employed for at least 40 hours in a period of 30 consecutive days in each financial year in which contributions are made. Unpaid work does not meet the definition of ‘gainfully employed’.
Employees are eligible to salary sacrifice concessional contributions in excess of their normal superannuation guarantee contributions.
Personal super contributions deductions
Currently, an individual (primarily self-employed) can claim a deduction for personal super contributions where they meet certain conditions. One of these conditions is that less than 10% of their income is from salary and wages. From 1 July 2017, this condition will be removed. The remaining conditions remain the same.
The contributions caps for the year ended 30 June 2017 are $30,000 for people under 50 years of age and $35,000 for people 50 years of age and over.
From 1 July 2017 the annual concessional contributions cap will be lowered to $25,000 for all individuals.
Currently individuals with income and concessional super contributions in excess of $300,000 trigger a Division 293 assessment. From 1 July, the government will lower the Division 293 income threshold to $250,000. An individual with income, and concessional super contribution, exceeding the $250,000 threshold will have an additional 15% tax imposed on the amount over the threshold, up to the total amount of the concessional contributions made, but not exceeding their concessional contributions cap.
Most hospital employers will allow employees (Doctors) to enter into salary sacrifice arrangements (i.e. you forego part of your remuneration and instead direct your employer to pay expenses on your behalf). Hospitals have access to generous Fringe Benefits Tax (FBT) exemptions, employees working within a public hospital are able to package $8,172 of their gross income to be paid to specific personal expenses (e.g. home mortgage), which are free of FBT to the employer and employee.
Other salary packaging items which can be tax-free under the ‘Otherwise Deductible Rule’ can include:
- Mobile phone (mainly used for work purposes)
- Tools of trade
- Protective clothing
Investment income, including interest, dividends, trust distributions, rent or other income, are assessed in the name of the person who holds the asset. As such from both an asset protection and tax management point of view it would be best to hold these assets in your spouses name (if they are not considered at risk) or in an investment vehicle such as an investment trust, where the income is able to be distributed in a tax effective manner.
The use of an investment Discretionary Trust with a corporate trustee would provide a high level of asset protection as well as significant tax planning opportunities.
Loan draw downs to fund asset purchases are generally deductible to the purchaser.
When investing in property, Land Tax must be considered. The land tax threshold does not apply to special trusts (including family/discretionary trusts). However individuals, companies, fixed trusts and self managed superannuation funds are able to utilise this threshold.
When moving assets between entities be sure to consider any capital gain tax or stamp duty implications.
Capital gains will also arise when a taxable capital asset is sold. If you make a capital gain be aware you are able to offset capital losses against this gain. Therefore it is important to review your asset portfolio before year end for any unrealised losses your wish to crystalise.
Make sure you get the most out of your tax planning with solutions tailored to your situation. BLG Business Advisers work with you so that you receive the most successful outcomes. Get in touch with us online or call (02) 4229 2211 to discuss your tax requirements.