Medical practice tax beyond payroll tax

Payroll tax is the largest tax a medical practice pays, and it is the one this site covers in the most depth. It is not the only one. A principal also has to decide how the practice is structured, how income is attributed, how the people who work in it are paid, and how GST and the asset rules apply.

This page is a map of those obligations and the order they tend to come up in. It does not explain any of them in full. Each is a link to the calculator or guide that owns it, so the detail stays in one place rather than being repeated here.

The order these decisions come up

The sequence matters, because an earlier choice changes what the later questions look like.

1. How the practice is structured, and whether the PSI rules apply. This comes first because every later question is asked of a particular entity, and the entity that receives the money is not always the entity that is taxed on it.
2. How money comes out of that structure. Where a company is in the structure, the way value is taken out is a choice, and the alternatives are not treated the same way.
3. The indirect taxes on what the practice sells. This follows the structure, because the entity that makes the supply is the entity that accounts for GST on it.
4. Superannuation, PAYG withholding and locum arrangements. These follow the engagement decision: how each person is engaged determines which of them apply. Payroll tax sits here as well, and has its own worksheet at medical practice payroll tax.
5. Depreciation, the instant asset write-off and fringe benefits tax. These fall due on what the practice buys and what it provides to the people in it, and they are the easiest of the five to plan around because they can be timed.

How the structural regimes interact

A service entity is often used to hold a practice's income, and it is commonly assumed to settle the tax question. It does not settle whether the PSI rules apply. Those rules follow the person who performs the work rather than the entity that invoices for it, so income can still be attributed to the practitioner personally even when the entity receives it.

Division 7A only enters the picture if a company is in the structure and value is taken out as a loan rather than as a salary or a dividend. The two regimes therefore answer different questions about the same structure: PSI asks who the income belongs to, and Division 7A asks whether money that has already left the company has been dealt with properly.

The entities in a structure are also usually grouped for payroll tax, which means adding a service entity can change the position of the whole group rather than of the new entity alone. That is why the payroll tax analysis starts with the group, not the employer.

One principle that applies to all of them

An ABN does not decide any of these questions. Payroll tax, the superannuation guarantee and the PSI rules each turn on the substance of the arrangement: who controls the work, whose patients are seen, whose equipment is used, and whether the practitioner is in business on their own account. Quoting an ABN, or invoicing through an entity, changes the paperwork rather than the test.

The contractor doctor payroll tax guide works that principle through the payroll tax side of a practice in detail. The full set of tools is on the calculator index.