Tax planning is of utmost importance to your practice as, without it, you could end up leaving your hard-earned dollars on the table.
To boost your financial position at tax-time, it is essential for your practice that you optimise your tax planning and make the most of the available tax-effective-wealth-creation strategies. Here are some tax planning opportunities for medical and dental practices that you should be taking advantage of.
6 tax planning opportunities
Ensuring you have the right business structure
There are various tax structures for medical and dental practices, each with their own set of risks and implications (which i won’t go into here). For example, a medical practice run through a company can claim a tax deduction for any wages or salaries paid to anyone employed by the company. This means they benefit from a small business tax rate of 27.5% compared to the tax rate for an individual (45% plus Medicare). Partnerships also benefit when it comes to tax too as splitting income between partners means that they pay tax with their own structure on their share of the net partnership income.
It is important to review your structure to ensure it is appropriately setup – this is something that you should speak to your adviser about on a regular basis.
Capital allowances
If you own the building from which you conduct your practice, you may be able to claim a deduction for capital expenditure incurred in construction. If you are able to obtain Quantity Surveyor reports to assist in your claim, then this counts towards being a business expense. This is known as a non-cash deduction. You can claim the tax deduction without any further outlay.
Superannuation
Superannuation is extremely tax-effective. Considering a tax deductible contribution each year offers a major benefit:
The concessional contributions made by you personally or from your business can be tax-deductible.
You can also make non-concessional contributions to your super so seek expert advice to make sure that you don’t exceed the limit.
It is also important to seek specialist financial advice to consider whether this is appropriate to you.
Tax deductions
Doctors and dentists that open their own practice (and sole traders) are treated as small business owners. This means that they are eligible for tax-deductions, specifically business expenses. Some deductions as a medical and dental professional/practice owner include:
Staff wages, marketing, computers, medical tools and equipment.
Professional indemnity insurance and income protection.
Seminar/training costs and any work-related self-learning (e.g. journal subscriptions, online courses, conferences etc).
Travel expenses and any accommodation costs in relation to work-related travel (e.g. seminars/training).
Cost of managing tax affairs, including accounting software and your appointments with your accountant.
Any expenses incurred in running your business.
By seeking specialist advice you will minimize the risk of missing out on any deductions specific to your industry.
Other income
Other tax deductions can also come off ‘other income’ such as the interest on loans where funds have been used to purchase investments assets (e.g. a loan to purchase listed shares or a loan to purchase an investment property). Like many other assets, it is important to consider where this should be held. But this is a discussion point for prior to purchasing the asset.
Income splitting
By generating “business profit,” that is profit that is earned by running a business (service entity), you can take advantage of income splitting between you and your family as well as corporate tax rates at 27.5% and reducing when and if appropriate. While redirecting income to a spouse or dependent who has a lower income is a good way to reduce your tax bill, caution is warranted as the Australian Taxation Office undertakes a great amount of audit activity in this area. Make sure that you know what is and isn’t allowed when it comes to income splitting. This is income that is not seen to be personal services income.
Maximise the advantages that come with tax planning!
Through some careful planning, you can make the most out of these 6 tax planning opportunities so that you’re in the best financial position possible when the End of Financial Year rolls around.
Make sure you get the most out of your tax planning by having a solid strategy in place. Tax planning is an important part of our strategic advice for doctors and dentists where we can work with your existing accountant or offer you a full in-house, fully integrated tax and accounting service. Contact me via mitchell@affluenceca.com.au, I’d be keen to help.