The medical industry has a large number of high-income earners and this attracts the attention of the ATO, especially where income splitting is concerned. The characteristic of income in this industry is largely for the personal services of practitioners/specialists whose income generally fall into higher individual marginal tax brackets.
One of the common methods of income splitting for a medical practitioner is to pay a wage to a family member or entity that could be paying tax at a lower marginal tax rate than the practitioner. The ATO has a strict set of rules around this type of transaction to ensure that it is done fairly.
In order to pay a spouse or family member a wage, the medical practitioner must ensure that they do not receive all their income from one source and satisfy the personal services income tests. The spouse or family member must also complete work for the practitioner to justify the wage such as invoicing or bookkeeping, and the remuneration must reflect commercial arrangements.
Service Fee Arrangements
When the medical income of a group is from the operation of practices, there is the option of using a service fee model for the use of business assets. In this instance, the income is completely a PSI or PSB based business model that attracts rules regarding profit distribution and tax payments.
If there is a practitioner that also completes chargeable work for the use of their personal professional skills there also needs to be consideration given to ensure they are properly remunerated for their expertise. The ATO has increased their scrutiny on these arrangements to ensure that the distribution of group profits correctly correlates with the various types of income earned.
For More Information
For more information on income splitting for medical practitioners, or how Archer Gowland Redshaw can assist you at practice or practitioner level, please contact the team on (07) 3002 2699 | info@agredshaw.com.au.
