Julie Lambert all articles by this author

GPs operating through trusts and companies not only risk extra scrutiny from the tax office but
may also face unexpected liabilities and medico-legal headaches.

A recent announcement by the Australian Tax Office aimed at professional services firms was a
warning shot for practitioners who channel their income through business structures designed to
slash their tax liability.

Among other questions in the wake of the 2 September advisory, practitioners and their financial
advisers are waiting for clues as to what the ATO will deem acceptable levels of income for
individuals operating in corporate structures.

But practice consultant and accountant David Dahm says GPs should be aware of other pitfalls,
such as payroll tax.

He says he has seen 15 cases this year alone of practitioners in company-style structures who
discovered they were liable to pay state-based payroll taxes, triggered when the business entity
reached a combined income threshold.

The payroll tax implications, which vary from state to state, are commonly not understood by GPs
who seek financial advice because they didn’t ask their advisers the right questions, Mr Dahm
said.

In Victoria, for example, the payroll tax threshold is $550,000 annually, easily reached by a
practice with a handful of GPs and support staff. All group income above that mark is subject to a
tax of 4.85%. In other states, the rate varies from 4.75% to 5.5%.

“It really is a case of out of the frying pan, into the fire,” the Health and Life CEO said.

“It could be a rude shock, doctors having to pay an extra 5% in state tax on top of their own
federal income tax.

“In the case of doctors who declared annual income of $200,000, they might have to pay an extra
$12,000 in payroll tax.”

The ATO made it clear in the 2 September advisory that doctors and other professionals will be a
target for audits unless they can show reasons for their restructuring of their affairs other than tax
minimisation.

Practices have been receiving questionnaires from the ATO asking them to divulge detailed
information on ownership structures.

Asset protection could be one justification for a professional turning to a practice trust or company
– easily identified by a trading name ending in Pty Ltd or Trustee – to hold other assets such as
family investments.

But Mr Dahm warns doctors should be aware this approach can increase exposure to medico-legal
claims.

“When you practise as a trust or a company, you will have trustees or directors, who are normally
family members.

“What is the point of exposing spouses to that? And why risk exposing your other business
investments to medico-legal problems?”

Steve Westaway, professional services partner at leading tax adviser Grant Thornton, says the
ATO’s audit criteria for professional services firms may change again from the 2 September
advice.

“This is the basis for audit selection in 2014–15. The higher you are up this tree, the more likely
you are to get looked at,” he said.

Tags: Steve Westaway, Grant Thornton, David Dahm, Health and Life, ATO, Medico-legal,
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About me: David Dahm BA (Acc.), CA., FCPA, CTA, FFin, CPM, FAAPM, FAIM, FGLF.

Chartered Accountant, Chartered Tax Adviser, Registered Tax Agent, Former AGPAL Surveyor 10 years of service

David Dahm is CEO and founder of the national medical and healthcare chartered accounting firm Health and Life and global Founder and CEO of the not for profit project the International Healthcare Standards and Ethics Board (www.ihseb.org)

After a serious work related car accident in 1989, and nine operations later I continue to be a patient and provider advocate. I enter my third decade as a national Chartered Accountant for Medical and Healthcare practices in Australia. I am a former 10-year Australian General Practice Accreditation surveyor. I come from a medico family. I have served on the AAPM national Board and was the inaugural national Chair of the Certified Practice Manager CPM post nominal. I continue to provide accounting tax and practice management advice to many practices all over Australia.

You know who you are and I thank you for this real honour and privilege to serve you and your community through you. Note, I am not a lawyer please seek appropriate legal and accounting advice. This information is for general information and discussion only.

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