Business Structure for Medical Practice
There are three arrangements you can choose i.e., Partnership Arrangement, Trust Arrangement and Hybrid Trust Arrangement.
Partnership Arrangement – Old School
We see less of this today.
Trust Arrangement – Most Common
This arrangement is the most common one we see today.
Hybrid Trust Arrangement – New Way
We hear this term more often today than a decade ago. As the name suggested, the trust is a combination of a unit trust and a discretionary trust.
The advantages are fewer entities, less accounting fees and administrative costs.
On prima facie, it looks unclear and blurry as only one entity and no separation as to the Service Fee of Principal Doctors.
Hence, a signed Service Agreement among Principal Doctors and the correct setup of the chart of accounts in the Practice book are crucial.
Regardless of which arrangement you decided to use, the income of Principal Doctors must declare to ATO is still the same.
Pitfall – Payroll Tax and Independent Associate Doctor
Considerable measures and steps must be taken to avoid the pitfall of payroll tax after another case* of the doctors billings (retainer fee) have been considered as taxable wages for payroll tax purposes as a result of incorrect arrangements.
* Thomas and Naaz Pty Ltd vs Chief Commissioner of State Revenue 2021 – Case Link
(i) Banking Arrangement
Most Medical Practices have the doctors payment go to their business account and remit the doctors balance after deducting their service fee.
We understand the reason is to improve business cash flow but it is high risk and a time-bomb.
Technically, Patients Medicare Benefits shall pay to the doctor practice entity directly, not to the Medical Practice.
(ii) Reporting
There is no need to report the doctors billings as income except service fee collected in the Financial Statements. Neither do we have to declare the income in quarterly BAS.
In Thomas and Naaz case, they had reported amounts paid to the doctors as “contract, sub-contractor and commission expenses” in their 2015 and 2016 income tax returns.
(iii) Service Agreement
The terms in the Agreement in the Thomas and Naaz case such as hourly rates, hours, leave, and restraint covenant are a recipe for disaster.
Should engage a reputable tax solicitor experience in the Medical Industry and Payroll Tax in drafting the Service Arrangement. Should you require, we can provide details of a solicitor to assist you.
We cannot emphasis enough the above steps must be executed correctly to avoid any repercussions.
Updated on Nov 20, 2021. RE Banking Arrangement, if you’re running a Mixed Billing Practice, you must have a separate bank account (Trust Account) to deposit all Independent Associate Doctors billings. You must not use the Trust Account fund but remit 100% of the billing to the doctor and raise a Recipient Created Tax Invoice for the Agreed Percentage of Facility/Service Fee.
