Starting a medical or allied health practice is an exciting step. Whether you are a GP opening your first clinic, a dentist establishing a dental practice or an allied health professional going into private practice, there are plenty of decisions to make.
One of the most important decisions is how you structure your medical practice.
The structure you choose can affect how your practice operates, how you pay tax, how profits are distributed, what happens if you bring in another practitioner and how easily you can grow or eventually sell the business.
There is no one structure that is right for every medical or allied health professional. The right approach depends on your circumstances, the type of practice you are establishing and your longer-term plans.
Why does your medical practice structure matter?
When starting a practice, it can be tempting to focus on finding premises, purchasing equipment, hiring staff and attracting patients.
The business structure can sometimes be an afterthought.
However, choosing a structure after the practice is already operating can make things more complicated. Changing the structure later may have tax, legal and administrative consequences.
Your structure can influence:
- How your business income is taxed
- How profits are retained or distributed
- Your personal exposure to business risks
- How you bring other practitioners into the practice
- How you acquire equipment and other assets
- Your ability to grow the practice
- What happens if you sell or restructure the practice in the future
This is why it is worth considering your structure before you start operating, rather than simply choosing the easiest option.
What business structures can doctors and allied health professionals use?
Depending on your circumstances, you may consider operating as a:
- Sole trader
- Company
- Trust
- Partnership
- Combination of different entities
Each option has different tax, legal, accounting and administrative implications.
1. Sole trader
Operating as a sole trader is generally the simplest business structure.
The business is operated in your own name and the income from the practice is generally included in your individual tax return.
For a doctor, dentist or allied health professional starting a small practice on their own, this may initially appear attractive because there is less administration than operating through a company or trust.
However, simplicity is not the only consideration.
As a sole trader, you generally have personal responsibility for the business’s debts and obligations. This means the structure may not be appropriate for every practice, particularly as the business grows or takes on greater commercial risks.
It is also important to consider what will happen if you eventually want to bring another practitioner or investor into the business.
2. Company
A company is a separate legal entity from the individuals who own it.
For medical and allied health practices, a company structure can provide greater flexibility around how the business is operated and how ownership is organised.
For example, a practice may have multiple owners or may wish to have different class of shares reflecting different owners’ entitlement to income, capital and/or voting rights.
However, setting up a company also involves additional administration and compliance requirements.
There are also important tax considerations. The fact that a company has a particular tax rate does not automatically mean that incorporating your practice will result in less overall tax.
The way money is taken from the company and distributed to its owners needs to be considered as part of the broader structure.
3. Trust
A trust can sometimes be used as part of a medical or allied health practice structure.
One potential advantage is flexibility in distributing trust income to eligible beneficiaries, subject to the applicable tax rules and the terms of the trust.
However, trusts can also be more complex to establish and administer than a sole trader structure.
It’s important not to set up a trust simply because someone says it is “better for tax”. The benefits and risks need to be considered in the context of your particular circumstances.
Note: The Government has proposed changes to how non-fixed trusts are taxed. Under the proposal, a minimum tax rate of 30% would apply to certain discretionary trust income from 1 July 2028, with some exceptions. As these changes are not law yet, medical and allied health practice owners using a trust should consider how the proposed rules may affect their structure and future tax planning.
4. Partnership
Traditionally, when two or more doctors decide to operate a practice together they may view a partnership being the most simple option.
However, a partnership involves more than simply agreeing to split the profits.
You should consider questions such as:
- Who owns the practice assets?
- How are profits and expenses divided?
- Who makes business decisions?
- What happens if one partner leaves?
- What happens if a partner wants to sell their interest?
- How are new partners admitted?
- What happens if the practice needs additional funding?
These questions should ideally be addressed before the practice starts operating.
Does a medical practice need a separate structure from the practitioner?
Not necessarily, though an increasing number of practices involve a separate service entity in the recent two decades.
One of the key questions when setting up a medical practice structure is whether the practitioner and the practice should operate through the same entity or whether different entities should be used for different purposes.
For example, the entity providing professional services may be structured differently from an entity that owns certain business assets or operates the broader practice.
The appropriate structure depends on the nature of the practice, professional requirements, ownership arrangements, assets and commercial objectives.
This is also an area where medical professionals should consider advice from their accountant or lawyer. Tax and accounting considerations are only part of the picture.
How Should Dentists Structure Their Dental Practice?
Dentists face many of the same structuring considerations as doctors, but there can be additional considerations around practice ownership, equipment, premises, employees and the eventual sale of the practice.
If you are looking for a tax accountant for dentists, your accountant should ideally understand more than your annual tax return.
They should understand how the dental practice operates and how decisions such as buying equipment, employing staff, purchasing a practice or changing ownership can affect the business.
For example, before purchasing an existing dental practice, it may be worth considering whether you are acquiring the business itself, certain assets, or an interest in an existing entity.
The structure of the transaction can have significant tax and commercial implications.
What Business Structure Is Best for Allied Health Professionals?
Depending on the profession and business model, this could include:
- Physiotherapists
- Psychologists
- Occupational therapists
- Speech pathologists
- Chiropractors
- Podiatrists
- Dietitians
- Other healthcare professionals
An accountant for allied health professionals can help you consider the accounting and tax implications of different structures before you establish your practice.
This can be particularly useful if you plan to employ other practitioners, operate multiple locations or eventually bring additional owners into the business.
Frequently asked questions
What is the best business structure for a medical practice?
There is no single best structure for every medical practice. The appropriate structure depends on factors such as ownership, expected income, business risks, future growth and your long-term plans.
How could the proposed Government changes affect medical practices using trust?
If your medical or allied health practice operates through a trust, the proposed Government changes could affect how your trust income is taxed from 1 July 2028.
The Government has proposed a 30% minimum tax on certain trust income, which could reduce some of the tax benefits of distributing income to beneficiaries on lower tax rates. However, exceptions may apply, and the impact will depend on your trust structure and circumstances.
If you use a trust for your medical practice, it may be worth reviewing your structure and tax planning with a qualified tax adviser.
Should a doctor set up a company or trust?
A company or trust may be appropriate in some circumstances, but neither is automatically better for every doctor. The tax, legal, administrative and commercial implications should be considered before deciding.
Do dentists need a separate company for their practice?
Not necessarily. The appropriate structure depends on how the dental practice is owned and operated, its assets, commercial arrangements and future plans.
How can an accountant help when setting up a medical practice?
An accountant can help you compare potential structures, understand tax and GST considerations, establish appropriate accounting systems and plan for the future growth or eventual sale of the practice.
When should I speak to an accountant about setting up my practice?
Ideally, speak to an accountant before establishing the practice or signing major contracts. Early advice can help you understand the implications of different structures before decisions become difficult or costly to change.
