Is Your Practice Structure Still Fit for Purpose?

Your practice may have changed significantly since its structure was first established. Has the structure kept up?

Billings grow, teams expand, owners change and retirement plans come into view, yet the entities and agreements supporting the practice can remain untouched.

This can create a gap between how the practice operates and how it is documented - affecting tax, flexibility, asset protection and succession.

Why Review Now?

Proposed reforms would impose a 30% minimum tax on certain discretionary trust income from 1 July 2028, with exclusions, an ‘Excluded Election Trust’ (EET) election and three years of rollover relief from 1 July 2027.

The measures are not yet law and may change. They are a reason to review - not to rush. Analyse the complete arrangement now, but avoid irreversible decisions until the legislation is settled.

Start with Who Earns the Income

For medical practitioners, personal services income is the starting point. A trust or company does not, by itself, allow income generated mainly from a practitioner’s efforts or skills to be redirected for a tax advantage.

Rather than asking which entity pays the least tax, begin with the commercial facts:

·         Income: Who earns and contracts for the clinical income?

·         People and assets: Who employs staff and provides the premises and equipment?

·         Risk: Which entity bears the operating costs and risks?

·         Returns: How are practice profits shared?

Check the Service Arrangements

Many practices use an associated service entity for staff, administration, premises, or equipment. The ATO recognises these arrangements but expects the services to be connected with the business and the fees to be correctly calculated.

Practices should confirm that the agreement matches what is delivered, the fee remains commercially supportable, and the accounts are consistent. A historic percentage should not automatically be treated as appropriate today.

Align Ownership and Profit Sharing

In a multi-owner practice, the owners’ commercial agreement should align with the governing documents and accounting treatment.

Key questions include how profits are shared, how new owners are admitted, how departing owners exit, how assets and goodwill are valued, and what happens in case of death or incapacity.

Keep Operating Risk and Long-Term Wealth in View

Professional risk, operating risk, and long-term wealth are different considerations. Premises, equipment, employing entities, and investments may require different treatment.

Asset protection is both a legal and tax issue, so key deeds, agreements, leases, and estate-planning documents should be reviewed with the appropriate advisers.

A Practical Review Process

A review does not assume the current structure is wrong or that restructuring is inevitable. It tests whether the arrangement still fits the practice.

1.     Map each entity and what it owns and does.

2.    Confirm who earns the clinical and practice income.

3.    Review the documents covering ownership, services, leases, and profit sharing.

4.    Test related-party charges against commercial support.

5.    Plan for change including succession, retirement, and future owners.

6.    Model the costs before any restructuring proceeds.

The Key Takeaway

A structure that suited your practice at the outset may not be appropriate as the business and your personal circumstances evolve.

The proposed trust reforms are a timely prompt, but PSI, service arrangements, ownership, asset protection, and succession need to be considered together.

A structure should work for the practice you have today - not the practice you had when it was established.
The right review brings your tax position, commercial arrangements, asset protection, and future plans into alignment.

Talk to us
Bongiorno & Partners helps medical practitioners and practice owners identify gaps, test the available options, and understand the tax and commercial implications before making a change.
If it has been some time since your structure was reviewed, talk to us about whether it still fits your practice today and your plans for the future.

General information only. This article does not take into account your objectives, financial situation, or needs and is not personal taxation, financial, legal, or investment advice. The proposed discretionary trust measures are not yet law and may change. Advice should be obtained for your circumstances.