Strategic Tax Planning to secure your medical practice’s financial health

BDO Health - Financial Health Series Part 3

Avoid the unwanted surprise by looking ahead rather than back with respect to your tax obligations.

By now you would have cleaned up your Chart of Accounts from Part 1 of our Financial Health series, and are using up-to-date and accurate information to review the performance of your business from Part 2. The next step is Tax Planning which provides the opportunity to assess business and operational considerations before seeing out the financial year, including:

Taxes paid year to date (including PAYG Instalments)

Many practice owners and associated family entities will use the PAYG instalment system. PAYG instalments are a tax prepayment and will always be based on the most recently lodged tax return. As a result, tax planning is the perfect opportunity to forecast an estimated tax position, which can assist with cash flow planning for any pending residual tax liability or alternatively, assess whether variations to instalments are appropriate for the June quarter.

Concessional Superannuation Contributions

Superannuation contributions are an effective way to maximise deductions for high-income earnings (i.e. medical practitioners) whilst at the same time facilitating future earnings in a low-tax environment (earnings in superannuation funds are generally taxed at 15%).

Dividend payments

Consideration should be made to the payment of dividends to the shareholders. This is particularly the case when Division 7A loans apply in which a dividend is required to satisfy the ATO’s minimum repayments. Given the increasing Division 7A interest rate issued by the ATO, the strategic importance of contemplating dividend payments is never more so important.

Business operations and structure

Tax planning provides the perfect opportunity to not only focus on profitability and tax positions, but also to conduct a health check on the operations and structure of your business. For example:

• Is your structure still appropriate?
• Have you considered your pricing structure for patient fees?
• Have you reviewed your cost structure or considered alternative suppliers?
• Have you conducted performance conversations/reviews with your staff?

Further practical considerations

There are also further practical items to consider and if possible quantify, through the tax planning process, including but not limited to:

• Application of professional profits tests as per the ATO’s practical compliance guidelines
• Service facility agreements – how do these impact the above in addition to other matters (i.e. payroll tax)
• Preparation of trustee resolution for the distribution of net income
• Business/Wealth Strategy – The tax planning conversation can serve as another check-in regarding your broader personal and family strategy and long-term aspirations/goals.

Next Steps

Please reach out to our team of healthcare specialists if you wish to discuss the above in light of your circumstances.