Why Structure Isn't a Shortcut Around PSI
How a Discretionary Trust Works for a Practice
- Section 100A can cancel the tax benefit of a distribution where a beneficiary’s entitlement arises from a “reimbursement agreement” and someone else actually enjoys the economic benefit of the funds – a real risk where trust distributions go to family members in name only.
- Division 7A and unpaid present entitlements (UPEs). A common structure has trust income distributed to a corporate beneficiary (often called a “bucket company”) for tax efficiency, while the cash itself stays in the trust. Following recent ATO positions and case law, unpaid present entitlements owed to a company beneficiary can be treated as Division 7A loans if not properly managed – triggering deemed unfranked dividends and additional tax.
- Annual trust resolutions must be made by the required deadline each year (generally before 30 June, so it’s worth reading alongside our EOFY checklist) and must genuinely reflect how the money actually moves. A resolution that doesn’t match reality is one of the most common compliance gaps found on review.
- Proposed reforms. There is a proposal for a minimum 30% tax rate on certain discretionary trust income from 1 July 2028, with some exceptions. This isn’t law yet, but any practice relying heavily on trust distributions should keep an eye on how this develops.
How a Company Works for a Practice
- Limited liability for shareholders regarding company debts – though this doesn’t protect a doctor from personal liability for their own clinical negligence, which sits with the individual practitioner regardless of structure.
- Capacity to retain earnings at the company tax rate rather than distributing everything out at personal marginal rates each year.
- Easier ownership transfer through the sale of shares, which can matter for succession planning.
- Higher setup and running costs, including ASIC fees and more formal governance obligations.
- Division 7A applies directly to companies too – if a shareholder or their associate draws money out of the company informally (an unrepaid loan, use of a company asset, forgiven debt), it can be treated as an unfranked deemed dividend unless it’s properly documented as a complying loan or genuine dividend.
- Directors carry personal legal responsibilities, and can in some circumstances be personally liable for unpaid company tax debts.
- Losses stay in the company – they don’t automatically flow through to offset a doctor’s personal income the way a sole trader’s loss might.
What About Superannuation Guarantee?
A Practical Way to Think About It
- Solo GP with straightforward personal billing: structure often has limited tax-splitting benefit due to PSI, so simplicity and asset protection considerations may matter more than tax minimisation.
- Multi-doctor practice with real infrastructure, staff and equipment: a service trust arrangement can be genuinely appropriate, provided the fee is commercial and documentation matches reality.
- Practice planning to retain profits for growth, or with a future sale/succession in mind: a company structure’s retained earnings and share-transfer mechanics can be more suitable.
- Any structure involving distributions to family members, or a bucket company: needs specific, current advice given increased ATO scrutiny of Section 100A and Division 7A in exactly this space.
Get the Structure Reviewed Properly
Frequently Asked Questions
Usually not significantly, if the income is Personal Services Income from your own clinical work – PSI rules generally require it to be taxed in your hands regardless of the entity it passes through.
A service trust owns practice infrastructure (premises, staff, equipment) and charges treating doctors a commercial fee for using it, while doctors bill patients directly for their clinical work. It remains a legitimate structure when the fee is genuinely commercial and properly documented.
It’s an anti-avoidance rule that treats certain loans, unpaid distributions, or benefits from a private company to a shareholder or associate as deemed unfranked dividends, unless properly structured as a complying loan. It applies to both company profits and unpaid trust entitlements owed to a corporate beneficiary.
It can cancel the tax benefit of a trust distribution where the beneficiary’s entitlement arises from a reimbursement-style arrangement and someone else actually gets the economic benefit – relevant where distributions go to family members who don’t genuinely receive the funds.
A company gives shareholders limited liability for company debts, but this doesn’t protect a doctor from personal liability for clinical negligence, which follows the individual regardless of structure.
Yes, potentially. If the arrangement is essentially for your personal labour, extended super guarantee rules can still apply regardless of the entity used to invoice.
Unpaid present entitlements owed to a corporate beneficiary can be treated as Division 7A loans under current ATO positions, which can trigger deemed unfranked dividends and additional tax if not properly documented and managed.
There’s a proposal for a minimum 30% tax rate on certain discretionary trust income from 1 July 2028, with some exceptions. It isn’t law yet, but practices relying on trust distributions should monitor developments.
Before a major change – taking on a partner, buying into a practice, hiring your first employee, or planning a sale, rather than after the income has already been earned under the existing structure.
An accountant experienced specifically in medical practice structuring, ideally alongside a lawyer for the legal documentation. You can book a free consultation with our team to review your current arrangement.
