FACT: A poorly considered business structure could cost you money.
Doctors pay tax. Due to their income being earned by personal exertion there are limited options available for doctors to minimise their tax burdens. However, a carefully planned business structure will protect your assets and personal wealth.
While operating a medical practice in the name of an individual may be administratively simple it is worth considering the use of other entities to form part of the practice’s business structure.
Structuring for asset protection
FACT: Doctors sometimes get sued.
Doctors are protected by insurance however this cannot always be guaranteed. Like all businesses, insurance companies are subject to fluctuating business cycles and poor management. In 2001, HIH Insurance, then one of Australia’s largest insurance companies went into liquidation and left many doctors with worthless indemnity insurance.
Using a company in its own right or as a trustee to operate the practice trust can offer some protection for the doctor’s personal assets.
A separate service entity can be formed. It charges the doctor a commercial fee for managing the administrative duties, taking on its own business risks in pursuit of its own profit. With this arrangement, assets of the service entity can be protected against potential litigation.
Flexible arrangements for single or groups of doctors
Fact: One day you will retire.
A flexible arrangement could suit a single doctor using a discretionary service trust with family beneficiaries. It would also benefit a group of doctors using a fixed service entity owned by each of the doctors’ discretionary trusts. A fixed service entity also allows for future buy-ins and exits.
Structuring correctly may help maximise the financial remuneration to you upon sale of your business when retiring.
FACT: Not all structures are created equal.
Ultimately, for any arrangement to be effective, the doctor must be able to demonstrate its commercial purpose.
As with any structure, it is important to weigh up the benefits of asset protection and tax planning opportunities with the costs of setting up and running a structure incorporating one or more entities. Sometimes simplicity in a structure is the most appropriate option.
Structuring to protect your personal wealth
FACT: Insurance policies don’t always protect your personal assets.
A lot of time and effort goes into growing a business. As you look down towards the road to retirement, asset accumulation will be essential in securing you and your family’s future. The correct structure and keeping your business and personal wealth separate can help secure your assets against external threats.
How we can help
When used properly, the benefits of a business structure can be substantial. As a full-service accounting firm, Pilot Partners has extensive experience in identifying and setting up structures for single and groups of doctors.
The firm’s medical services division is led by Kristy Baxter and Angela Stavropoulos. Combined, they have over 30 years experience working within the accounting profession. Contact them on (07) 3023 1300 to arrange a complimentary meeting to discuss your current arrangements.