Six Personal Services Income Myths for Doctors and Dentists and their practices
Six Personal Services Income Myths for Doctors and Dentists
The Australian Taxation Office (ATO) has a set of rules known as PSI that outlines how doctors and dentists (individually) are required to treat their income and expenses in their tax return.
While this might seem straightforward at first glance, this is not necessarily the case, and there are a number of myths and misconceptions surrounding personal services income for doctors and dentists.
We’ll be debunking some of these myths below.
Myth One – A doctor is a contractor if they have an ABN
A doctor or dentist can have an ABN without being a contractor. Quoting an ABN will not automatically make a doctor/dentist a contractor.
However, the terms and conditions of the working arrangement will outline if the dentist or doctor is a contractor or an employee. It is important to note that how you are treated from a superannuation point of view can be completely different to an income tax point of view.
Myth Two – 80/20 Rule – Your doctor/dentist isn’t allowed to call themselves a contractor if they dedicate more than 80% of their time at one practice.
Whether a doctor/dentist spends more than 80% of their time in one practice is completely irrelevant when considering whether they are a contractor or employee. The 80/20 rule relates to PSI and what deductions (if any) an individual doctor or dentist can claim.
Myth Three – If your doctor/dentist registers a business name for their practice, they’re a contractor
A registered business name does not make a doctor or dentist a contractor. You can register a business name, but it doesn’t necessarily mean you are a contractor each time you work, or for every job you take on. You will need to consider the particulars around each job. The best way to do this is to review the specific terms and conditions related to that role.
Myth Four – A medical or dental practice doesn’t have to worry about superannuation if you only engage contractors
While it’s true that employers generally only need to contribute to superannuation for their employees, and not for contractors, this is not always the case. There can be a different definition of being an employee for income tax compared to superannuation (SGC). It is important to seek specific advice at the start to avoid this becoming an issue later. It is critical to review the specifics around that role to ensure you are protected.
Myth Five – You should engage any workers you take on as a contractor if you use them for their specialist skills or qualifications, for example a hygienist or a nurse practitioner
Picking a person for a job due to their specialist skills or qualifications doesn’t automatically turn them into a contractor. Whether this person is a contractor or an employee will depend on the conditions and terms of the working arrangement.
Myth Six – A practice can’t use employees on a short-term basis or to help out during busy times
The regularity of the work or job duration doesn’t make a difference to whether a dentist or doctor is a contractor or an employee. A practice can use both contractors or employees for locum or on-call work. Short-term work may open up the ability for someone to be considered a casual employee, but this will depend on the details of the role.
These six myths should give you more little clarity surrounding personal services income.
As a dentist or doctor, this can make filing your annual taxes easier. Contact us if you need any further help or guidance!