Accounting for Multi-Doctor Practices in Melbourne

Running a practice with multiple doctors adds a layer of financial complexity beyond individual tax. Revenue allocation between practitioners, the service entity model, contractor agreements, staff payroll, Medicare reconciliation, and managing partner entry and exit are all issues that need to be handled correctly — because mistakes in any of them flow through to every doctor in the practice.

We work with group GP practices, specialist centres, and multi-disciplinary clinics across Melbourne. Whether your practice has two principals or twenty practitioners, the fundamentals are the same: accurate billing reconciliation, fair and defensible allocation of income and costs, and a structure that complies with the ATO’s rules around service entities and personal services income.

Revenue models in Melbourne group practices

Most Melbourne multi-doctor practices use one of two income allocation models. The percentage of billings model sees each doctor receive a set percentage of what they bill after the practice deducts a service fee — transparent and directly tied to productivity, with the core accounting requirement being accurate reconciliation of Medicare and private billing for each provider number. The salary or draw model sees practitioners receive a fixed salary or regular draw with practice profits distributed separately — more common in specialist practices and requiring clear documentation of how profits are calculated.

In either model, the ATO expects service fees charged by the practice entity to be commercially realistic, any income splitting between family members to be supported by genuine work performed, and a proper distinction between contractor income and employee income.

The service entity model — how it works and what can go wrong

A standard multi-doctor structure separates the professional entity (where doctors earn clinical income) from the service entity (which provides rooms, administration, equipment, and staff). The service entity charges the professional entity a management fee for those services.

This structure is legitimate when set up correctly. It can go wrong if service fees are set too high (if the fee absorbs most of the practice’s profit, the ATO may challenge it — the fee needs to reflect genuine market value), or if PSI rules aren’t properly accounted for (if individual doctors’ income is PSI, the service entity model doesn’t overcome the PSI attribution).

Partner buy-in and exit

One of the most consequential financial events in a practice’s life is a partner entry or exit. For a buy-in, what does the incoming practitioner pay for — goodwill, equipment, leasehold improvements, work in progress? How is the price set, and what entity structure does the incoming doctor acquire an interest in? The structure of the buy-in affects the tax treatment for both parties.

For an exit, capital gains on the sale of a practice interest may attract CGT, subject to the 50% discount (if held more than 12 months) and potentially the small business CGT concessions. This is worth planning for well in advance of an exit.

Related services

• Accounting and tax for doctors — full overview
• Practice entity structuring for doctors
• PSI rules for doctors and medical professionals
• Payroll services for medical practices
• BAS for medical practitioners

Frequently asked questions

How does revenue allocation work in a Melbourne group medical practice?
Most Melbourne multi-doctor practices use a percentage of billings model — each doctor receives a set percentage of what they bill after the practice deducts a service fee. Accurate, timely reconciliation of Medicare and private billing for each provider number is the core accounting requirement.

Can my spouse receive income from our medical practice?
Yes, but the income needs to reflect the genuine value of work they perform. Reception, administration, and practice management roles can all be legitimately remunerated. The ATO looks closely at situations where a family member is paid a salary that is not reflective of the work they actually do.

Are the practitioners in our practice employees or contractors?
This is one of the most important classification questions in medical practice accounting. The key question is whether the practitioner works under the direction and control of the practice, or whether they are genuinely running their own practice from the premises. We review your current arrangements and advise on the correct classification and its consequences.

What happens tax-wise when a partner exits our Melbourne medical practice?
Capital gains on the sale of a practice interest may attract CGT, subject to the 50% discount (if held more than 12 months) and potentially the small business CGT concessions. The structure of the exit affects the tax outcome for both parties. This is worth planning well in advance.

Contact us on 1300 212 663 or visit our Melbourne CBD office.