Receiving lump sum payments
dr tax

Lump sum payments received by healthcare practitioners –

Ordinary Income Not Capital Payments

 

The ATO are concerned about healthcare practitioners receiving lump sums and treating them as capital payments and have released a detailed fact sheet setting out what they expect to see in such situations.

If a healthcare practitioner (such as a doctor, dentist, physical therapist, radiologist or pharmacist) gets a lump sum payment from a healthcare centre operator, according to the ATO “it’s probably not a capital gain. It’s more likely to be ordinary income”.

Specifically, the lump sum will typically be ordinary income of the practitioner for providing services to their patients from the healthcare centre. Importantly, the mere fact the payment is a oneoff lump sum, or expressed to be principally consideration for the restraint imposed, for the goodwill or for the other terms or conditions, does not define it as having the character of a capital receipt.

Lump sum arrangements

In the healthcare services industry, it is now common for some practitioners to operate from healthcare centres run by third parties. This frequently occurs without any stated partnership or employment relationship between the third party and the practitioner.

The third parties that run these centres generally encourage practitioners to start work or continue to work from their centres. They may offer lump sum payments for this purpose and there is nothing wrong with that. Our concerns relate to the tax treatment of the lump sum payments by the practitioner.

The ATO’s concerns may affect you if your arrangements have most or all of the following features:

  • A healthcare centre operator provides you with fully equipped consulting rooms, administrative services, clerical staff and facilities as necessary for you to provide healthcare services. The agreements entered into typically state that there is no employment relationship between you and the operator.
  • In return for these facilities and services, you are required to pay the operator an agreed percentage of the receipts for the healthcare services you provide.
  • You are required to provide healthcare services from the healthcare centre for an agreed minimum period of time, minimum weekly working hours and working patterns.
  • You are required to use your best endeavours to grow and promote the interests of the healthcare centre.
  • The operator pays you a lump sum
    • it is described as being consideration for a restraint imposed, for goodwill, for other terms or conditions, or for a combination of the three
    • the payment is ordinarily made when you enter into the agreement or start to provide healthcare services to patients from the healthcare centre (whichever is the later) or whenever the agreements relating to the provision of healthcare services are renewed.

Whilst these are common features, any other arrangements that relate to a lump sum payment for your ongoing provision of healthcare services from a medical centre may still be of concern to the ATO.

If you are considering any arrangements that relate to a lump sum payment for commencing or providing ongoing healthcare services, you should note that the ATO:

  • have concerns with those payments being mistakenly treated as capital gains
  • are looking closely at these arrangements to determine if they are compliant with income tax laws and whether the anti-avoidance provisions may apply.

The ATO are aware that some practitioners are using a private ruling that was issued to another taxpayer:

  • You can only rely on a private ruling if you applied for it.
  • From 2013, the ATO have consistently issued private rulings on these or similar arrangements treating the whole of the lump sum payment as assessable ordinary income.

If you think this may affect you, we can help you work out what you need to do.  Call Stellar Accounts on 07 3359 0014.

 

Screen Shot 2017-03-15 at 10.49.02 am

Doctor’s deductions
doctors

 

Doctors – is your Accountant Claiming all the

Deductions You are entitled to?

Work-related self-education

Work-related self-education expenses are a key deduction for Doctors.  It is important that you have a system in place for tracking all your education costs, including

  • textbooks
  • materials
  • course/seminar fees
  • home-office computers and furniture for study
  • photocopying costs
  • student services fees, and
  • course-attendance-travel costs.

 

Other work-related expenses

Other work-related expenses cover many types of expenses that you incur in the process of earning your assessable income.

This might include:

  • purchasing a briefcase
  • buying a stethoscope and other equipment
  • phone and internet expenses
  • travel and accommodation costs for attending a conference
  • membership fees for professional associations
  • journal subscription fees; and
  • insurance and medical registration fees

Remember, when claiming a work-related expense, you must have already paid for it yourself and not been reimbursed by your employer for the cost.

 

Home-based work expenses

As medical practitioner, if you work from home at times, you might be able to claim for expenses such as:

  • using your computer,
  • phone, and
  • internet for work purposes.

Heating, cooling, lighting, office-equipment depreciation, and at-home professional library could all be tax deductible expense.

However, you can only claim for the portion of the expense that’s used for work purposes.

 

Vehicle Expenses

Travel costs you may be able to claim can include:

  • travel between hospitals or medical centres for work.
  • travelling to do work in remote, rural, or interstate areas, and
  • travel for functions and events that are related to your work.

If you attend and present at a function or conference for example, you might be able to claim for everything from airfares, accommodation, meals and the cost of having conference materials printed out.

If you travelled partly for work and partly for personal reasons, you can only claim on the part that was for work purposes. Note that if your home is a base of employment in that you started your work at home and then travelled to a workplace in continuation of the work, you could claim for these travel expenses.

Maintain a logbook to ensure you can claim all vehicle expenses including:

  • Fuel
  • Registration
  • Insurance
  • Maintenance
  • Interest on car loan
  • Depreciation

In Summary

Speak to a professional to ensure you get all the deductions you are entitled to.

The most important tip is, if you purchased a good/service for work purposes, keep your receipts and discuss the ability to claim this as a deduction at income tax time.

At Stellar Accounts we are always looking for ways to minimise tax for our clients.

Screen Shot 2017-03-15 at 10.49.02 am

Discretionary Trusts
Conceptual symbold home made from black and white hands isolated over white backgroundConceptual symbold home made from black and white hands isolated over white background

Discretionary Trusts – are they the new company?

 

Thinking you have outgrown your soletrader status? Looking to minimise your tax? Have you considered entering into a Family Trust structure?

The term family trust refers to a discretionary trust set up to hold a family’s assets or to conduct a family business. Generally, they are established for asset protection or tax purposes.

What is a Family Trust in Australia?

An Australian family trust:

  • is generally established by a family member for the benefit of members of the ‘family group’;
  • can be the subject of a family trust election which provides it with certain tax advantages, provided that the trust passes the family control test and makes distributions of trust income only to beneficiaries of the trust who are within the ‘family group’;
  • can assist in protecting the family group’s assets from the liabilities of one or more of the family members (for instance, in the event of a family member’s bankruptcy or insolvency);
  • provides a mechanism to pass family assets to future generations; and
  • can provide a means of accessing favourable taxation treatment by ensuring all family members use their income tax “tax-free thresholds”.

A family trust has many other potential benefits, including avoiding issues such as challenges to the will following a death of a senior member of the family.

Tax Implications

Companies are currently taxed at 28.5% from the first $.

Trusts on the other hand, are not taxed. Instead, the profits are distributed to beneficiaries of the trust and are then taxed at individual marginal tax rates – ie each beneficiary is entitled to the $18200 tax free threshold.

For example – a business ends the year with a 75000 profit –

Company – $75000 @ 28.5% = $21375

Trust with 3 beneficiaries – 75000/3 = $25000 is distributed to each beneficiary resulting in them paying $1292 each in tax – a saving of $17499 in tax.

Yes – this is a simplistic view of a basic trust – and yes – there are rules around taxing of minors etc – but it is definitely something to consider when your business starts to grow bigger and bigger.

Call Stellar Accounts today for advice and assistance on the best business structure to suit your needs.

 

Screen Shot 2017-03-15 at 10.49.02 am

Our Network and the New Year
January 15, 2016
2
freindship

snow

I’m sitting here in freezing in Cincinnati, Ohio. Weather app says -12. That’s freakin’ cold! School was delayed by 2 hours today because of severe temperatures. This fellowship we are on has been such an adventure. As it winds down (we have 5 months left), I have begun to appreciate so much more about the area we live in. I’m realising that the next move back to Australia will be the last intercity/interstate/international move we make. We will settle down and try to put down our family roots. This training journey has been quite the ride.

So this month while I’ve been lighting fires, watching the snow fall, and getting hit by snowballs, I’ve been contemplating the New Year, resolutions, the passing of time and changing seasons. Next year the youngest of my 3 kids will start kindergarten and Niall will be working in private practice. A new season of my life will begin. I’m not sure what it means, or what it will bring, but I’m excited.

When Amanda and I started ADSN 3 years ago, (actually we went through a couple of name changes before it became ADSN- that’s another story!) we had a simple goal. We wanted to connect the thousands of spouses that were on this journey with us. Before ADSN, I would move to a new city and spend months fumbling my way around, attempting to make friends, looking for things to do. I would look at these huge hospitals full of doctors and think to myself- Where do all the spouses hide? What are they doing right now?

ADSN was certainly an answer to that question. We’ve connected spouses from all specialties, backgrounds, and walks of life. The craziest part of this journey is seeing what an amazing, diverse, skilled, and passionate group of people are going through life married to medicine. Most of us are not doctors ourselves but will spend the rest of our lives tied to a person who takes care of strangers. They will work long hours, they will study forever, they will be called away from us during important family events, and they will lose sleep over their patients. We will attempt to be their rock. We will love and support them even when we feel like screaming WHAT ABOUT ME?!!!!

Now what? Is that it? Is our network just a place where we can come when we have a question about accountants or accommodation or a place we come to bitch and moan about moving again? I hope not.

WHAT IF…
We became a team. We cared hard for each other. We banded together. We turned to each other in our darkest moments. We listened to each other with real compassion. We tried really hard to enjoy the journey we are on. We reached out and created community. We fostered lifelong friendships. We became mentors and mentees. We became a force for good in our communities.

My dream for 2016 and beyond is that this little network becomes more. I want to support you and I want you to support me. So where do we go from here? I don’t really know. Can we do this? Can the spouses of Australian and New Zealand doctors make a difference? I know we can. A little cheesy maybe, but I love and care about all of you. I thank you for showing me that I’m not alone and that even when it’s hard, it’s possible.
Kenna

Share Your Journey! Spouse Q & A
October 14, 2015
0
keep-calm-we-re-all-in-this-together-7

Spouse Q & A

From time to time, we share a spouse's journey on our website to encourage the rest of us. We'd love to hear from you and share your experiences with the Network. You can answer as much or as little as you like. Thanks in advance!
  • Tell us about your family
  • This will be seen and used by ADSN admins only.