Accountants for Medical and Dental Practices

A medical or dental practice has to hold together two things that are taxed and regulated differently. There is the clinical income, earned by practitioners who are often not employees, and there is the practice itself: rooms, staff, equipment, software and a billing system that runs through Medicare, health funds, HICAPS and patients. The structure that connects them determines how much tax is paid, whether payroll tax applies and whether a principal can ever sell their share.

We act for general practitioners, dentists, specialists and allied practice owners across Brisbane, Logan and the Scenic Rim, and for practitioners interstate by video. The questions are consistent: how should the practice be structured, how should practitioners be paid, what does the Queensland Revenue Office think of the arrangements, how do I buy in or sell out, and what should I do with the income that is left after tax.

This page covers each of those. It is general information and the rules change, especially on payroll tax, so treat it as a map of the issues rather than advice on your facts.

Most established practices use a service entity. A company or trust owns or leases the rooms, employs the reception and nursing staff, holds the equipment and provides those services to the practitioners for a fee. The practitioners, in their own names or through their own entities, earn the clinical income and pay the service fee. Done properly, the arrangement centralises the administration, keeps the clinical income separate from practice liabilities and lets the practice profit sit in a structure that suits the owners.

The ATO accepts service entity arrangements but has published guidance on what it expects. The service fee has to be commercially realistic for the services actually provided, the agreement has to be written down and followed, and the entity has to genuinely do the work it charges for. Fees set at a percentage of gross billings with no relationship to the cost of running the rooms, or fees that are booked but never paid, attract attention. The ATO has also been direct about profit from a practitioner's own personal exertion being diverted to related parties through these structures.

We set up and review service entities against the current guidance, document the basis for the fee and make sure the money actually moves the way the agreement says. Where a practice has an arrangement that was set up years ago and never revisited, a review is usually overdue.

This is the issue that has reshaped medical practice accounting in recent years. State revenue offices, including the Queensland Revenue Office, have taken the position that payments flowing through a practice to contractor practitioners can be wages for payroll tax purposes under the relevant contract provisions, even where the practitioner is clearly not an employee. Court decisions in other states supported that view, and the QRO issued a public ruling setting out how it applies the law to medical centres.

Queensland has since made changes, including amnesty arrangements for general practitioners for earlier periods and legislated relief for certain payments to contracted GPs. Dentists, specialists and allied health practices are not necessarily covered by the same relief, and the outcome depends on how the money flows, who bills whom and what the agreements say. The thresholds, exemptions and amnesty terms have changed more than once and may change again, so we check the current QRO position before advising any practice and we do not rely on last year's answer.

What we do in practice is map the flow of funds, read the practitioner agreements, assess the exposure under the current rules and, where appropriate, restructure the billing and payment arrangements so the practice is not acting as a conduit for practitioner income. We prepare payroll tax registrations and returns where a liability exists and manage voluntary disclosures where one is needed. This is not an area where a practice should rely on how things were done five years ago.

A practitioner who earns most of their income from their own skill and effort is likely earning personal services income. The PSI rules limit what can be deducted against that income and prevent it being split with a spouse or retained in a company at a lower rate, unless the practitioner is conducting a personal services business under the tests in the legislation. Practitioners seeing many patients through a practice often pass the tests, but the result depends on how the income is earned and billed, and assuming the outcome without checking is a common and costly mistake.

The same facts decide whether a practitioner is an associate, a contractor or an employee. An associate dentist on a percentage of billings with their own patients and their own professional indemnity looks quite different from a practitioner on a fixed roster paid by the hour. The ATO, Fair Work and the QRO each look at the substance, and getting it wrong can mean super guarantee, PAYG withholding, leave entitlements and payroll tax all at once.

We review each engagement, document it correctly and align the agreement, the billing and the payments so they all say the same thing.

• Personal services income assessments and personal services business tests
• Associate, contractor and employee classification
• Practitioner agreements aligned with billing and payment flows
• PAYG withholding, super guarantee and STP where employment exists
• Payroll tax registration and returns where a liability exists

Buying into a practice is the biggest financial decision most practitioners make, and the price is often set by habit rather than analysis. We value practices on their actual earnings, the strength of the patient base, the dependence on individual practitioners, the lease and the equipment, and we model what the buy-in does to the buyer's personal cash flow after loan repayments and tax. Vendors get the same treatment in reverse: what the practice is actually worth, and what would make it worth more before it is sold.

Dental and specialist practices are equipment heavy. Chairs, imaging, sterilisation, surgical equipment and fit-out are major capital items, and the choice between chattel mortgage, lease, hire purchase or cash affects both the deductions and the cash flow. The instant asset write-off and depreciation rules change from year to year, so we check the current thresholds before a purchase is made, not after.

Multi-principal practices also need an ownership structure that can cope with change. A partnership of individuals, a unit trust or a company each handle the admission of a new principal, the retirement of an old one and the sharing of profit differently, and the choice affects stamp duty, capital gains tax and the small business CGT concessions when a share changes hands. We design the structure with the next transition in mind, not just the current one.

• Practice valuations for buy-ins, buy-outs and partner changes
• Due diligence on the practice you are buying into
• Buy-in financing structured around personal cash flow
• Equipment finance comparison and depreciation planning
• Partnership, unit trust and company structures for multi-principal practices
• Succession planning for retiring principals

Practitioners are high earners and the tax system treats them accordingly. Concessional super contributions are capped, the cap and the catch-up rules change, and an additional tax applies to contributions once income passes a threshold. Even so, super remains one of the most effective tax environments available, and for owners who want control, a self managed super fund that owns the practice premises is a common and legitimate strategy, provided it is set up and run correctly.

Division 7A is the trap for practitioners who run a company and treat its bank account as their own. Loans, payments and private use of company assets that are not put on complying loan terms or repaid by the deadline are treated as unfranked dividends and taxed in the practitioner's hands. We run the company accounts so that drawings, loans and dividends are planned each year rather than discovered at tax time.

Beyond the practice, most of our medical and dental clients want help with the personal side: investment structures, property held in the right entity, asset protection in a profession where being sued is a real risk, and a plan for the years when they slow down. We meet practice owners at our Victoria Point office in the Redlands, at VKS Accounting in Jimboomba, or by video.