Practice Entity Structuring for Doctors
The entity you operate through as a doctor determines how your income is taxed, what deductions you can access, how your assets are protected, and what options you have when your circumstances change. Getting this wrong at the beginning — or failing to review it as income grows — is one of the most common and costly mistakes we see Melbourne medical professionals make.
We advise on entity structuring for doctors at every stage: from a new GP starting their first contractor arrangement, to established specialists transitioning to a more efficient structure, to practice owners preparing for sale or succession.
The four main options and when each makes sense
Sole trader. Income earned in your own name, reported on your personal tax return. Simple to set up and run. Disadvantages: all income taxed at your marginal rate (up to 47%), no asset protection (personal assets are exposed to practice liabilities), no income splitting. Best suited to doctors just starting out with modest income, or doctors whose income is entirely classified as PSI and who don’t want the ongoing cost of a company.
Company. Income earned through a proprietary limited company. The company pays tax at 25% (for base rate entities), rather than up to 47% personally. Profits can be retained in the company and reinvested at the lower rate. Income can be paid to shareholders as dividends, with franking credits. The company is a separate legal entity, so its liabilities don’t flow back to you personally (absent personal guarantees).
Discretionary (family) trust. Income earned through a trust, with distributions made annually to beneficiaries at the trustee’s discretion. The trust itself pays no income tax — all income is distributed to beneficiaries who are taxed at their own marginal rates. Key benefit: distributions can be spread across lower-income family members. Subject to PSI rules — if your income is PSI, it can’t be split through a trust.
Company + trust hybrid. A corporate trustee holds a family trust, which earns practice income. Combines trust income splitting with the liability protection of a company as trustee. Appropriate for higher-income practices that pass the PSI business tests. More complex and costly to set up and maintain, but appropriate when the savings justify it.
What PSI means for your structure choice
Personal Services Income (PSI) rules are the most important constraint on structure choice for most Melbourne doctors. If your income is PSI — because it’s generated primarily through your personal skill rather than a genuine business operation — then income must be attributed to you personally for tax purposes, you can’t split income with family members through a trust or company, and your company or trust can’t retain profits at a lower rate.
This doesn’t mean a company is useless under PSI — it can still be useful for managing cash flow and building a financial foundation. But the tax efficiency benefits are significantly reduced. The PSI rules have multiple tests, and whether you pass them depends on your specific income sources, contracts, and business operations. We assess this specifically for each client.
Transitioning from one structure to another
Many Melbourne doctors start as sole traders and find, as income grows, that the tax cost is material. Transitioning to a company or trust mid-career is possible — but needs careful planning to avoid CGT triggered by transferring existing assets into a new entity, stamp duty on property transferred into a structure, and disruption to existing banking arrangements. We plan these transitions carefully, usually over 12 months, to minimise the costs and disruption.
Related services
- Accounting and tax for doctors — full overview
- PSI rules for doctors and medical professionals
- CGT on the sale of a medical practice
- Multi-doctor practice accounting
Frequently asked questions
Do I really need a company and a trust — or is that overkill?
Not necessarily. A company plus trust hybrid is appropriate for some situations, but it costs more to set up and more to maintain each year. For a doctor whose income is entirely PSI, the additional complexity may deliver no meaningful tax benefit. We give you an honest assessment of whether the structure is worth the cost in your specific situation.
When should a Melbourne doctor set up a company or trust?
Setting up a structure before you start earning ABN income is easier and cleaner. The right time to review is when your practice income has grown to the point where the tax saving from a different structure outweighs its ongoing cost — typically when ABN income exceeds $150,000 to $200,000.
Can I transition from a sole trader to a company mid-career?
Yes, but it needs careful planning to avoid triggering CGT on the transfer of assets, stamp duty implications, and disruption to existing banking arrangements. We typically plan these transitions over 12 months to minimise costs and disruption.
How do PSI rules affect structure choices for Melbourne doctors?
PSI rules are the most important constraint on structure choices for most Melbourne doctors. If your income is classified as PSI, you cannot split it with family members through a trust or company. We assess PSI specifically for each client because the answer depends on your individual income sources and contracts.
Call us on 1300 212 663 or visit our Melbourne CBD office.