Most doctors decide to go into private practice for clinical reasons. You want control over how you treat patients, who you work with, and what your week looks like. Almost nobody makes the decision because they are excited about structuring, payroll tax or BAS lodgements — and yet those are the things that determine whether the practice is profitable and whether you sleep well at tax time.
We look after a lot of medical clients in Adelaide, and the same handful of issues come up every time someone moves from employment or contracting into running their own rooms. Here is what actually matters, in the order it matters.
Get the structure right before you get the ABN
The most common mistake we see is a doctor setting up a company because a colleague told them to, without anyone asking what the company is meant to achieve. There are really only three options, and the right one depends on how you will be paid and who else is involved.
Sole trader is the simplest and, for a solo practitioner who is genuinely earning income from their own personal skill, is often perfectly adequate. It is cheap to run, easy to wind up, and the tax outcome is frequently identical to a company once the personal services income rules are applied.
A company makes sense where you have genuine business risk, are employing staff, want to retain profits at the company tax rate to fund equipment or fit-out, or are going into practice with other doctors. It also gives you a cleaner vehicle if you ever want to sell an interest in the practice.
A trust — usually a discretionary trust — is powerful where there is genuine business income that is not tied to one person’s personal exertion. For a practice with several practitioners, employed nurses, its own premises and its own patient base, a trust can be very effective. For a solo doctor billing under their own provider number, it usually is not, for the reason set out next.
Personal services income: the rule that catches most new practices
The personal services income (PSI) rules exist to stop people converting what is really salary into business income that can be split with a spouse or retained in a company. If more than half of what you earn under a contract is a reward for your personal skill or effort — which describes almost all clinical work — the income is PSI.
That does not automatically mean the rules bite. If you pass one of the personal services business tests, the income is treated as ordinary business income. Where doctors sit depends almost entirely on the shape of their arrangement:
- A doctor running their own rooms with their own patients, their own premises and their own staff will usually pass one of the tests comfortably.
- A doctor who leaves the hospital and starts “contracting” to a single practice, working set sessions, using that practice’s rooms, staff and billing, is at real risk of failing. In that case the income is attributed back to you personally, you cannot split it, and most of the deductions you were hoping for disappear.
This is worth thinking about before you sign the agreement, not after. The wording of the contract, whether you carry your own indemnity, whether you can delegate, and whether you have more than one source of patients all feed into the answer.
Where a service entity still fits
Service entities have been part of medical practice structuring for decades, and they still work — provided the entity genuinely provides something and the fee is commercially defensible. If the service trust employs the reception and nursing staff, holds the lease, owns the equipment and carries the associated risk, charging the practitioners a properly benchmarked fee for that is legitimate. If the entity does nothing and simply skims a percentage, it will not survive scrutiny. We have written about this in more detail in our guide to service trusts for doctors.
Payroll tax is now the biggest single issue for South Australian practices
If there is one thing to get advice on before you open the doors, it is this. State revenue offices around the country, including RevenueSA, take the position that payments made by a practice to contracted practitioners can be “wages” for payroll tax purposes under the relevant contractor provisions — even where everyone involved considers the doctor an independent contractor with their own ABN.
In South Australia the amnesty for practices with contracted GPs ran to 30 June 2024 and has ended. From 1 July 2024 a targeted exemption applies to wages paid to employee and contractor GPs, calculated in proportion to the practice’s rate of bulk billing — so a practice that bulk bills half its services can exempt roughly half of those GP wages. It is a genuine concession, but it is a formula, not a blanket exemption, and it requires the practice to actually track and substantiate its bulk-billing ratio.
Specialists and dentists were treated differently again: retrospective relief was available for earlier years, but only where the practice had registered as an employer in time, and there is no ongoing exemption for those practitioners. If you are a specialist setting up rooms in Adelaide with other practitioners contracting in, assume payroll tax is in play and model it before you set your service fee. Our earlier article on payroll tax and medical practices goes through the mechanics.
GST: mostly exempt, but not entirely
Most doctors assume medical practice means no GST. Clinical services are generally GST-free, which is true as far as it goes, but new practices are regularly caught out by the parts that are not:
- Service entity fees charged to practitioners are taxable supplies.
- Medico-legal reports, and many reports prepared for insurers, employers or solicitors, are taxable.
- Purely cosmetic procedures with no Medicare benefit payable are generally taxable.
- Renting a room to another practitioner is a taxable supply of premises, not a medical service.
Mixed practices need to register and apportion properly. The upside is that registration also lets you claim GST credits on fit-out, equipment and rent, which in year one can be substantial.
The year-one cash flow trap
This one catches almost everybody. In your first year of private practice, nobody is withholding tax from your income and the ATO has not yet issued PAYG instalments, because it has no history to base them on. The money feels like it is yours. Then the first return is lodged, a full year’s tax falls due, and the ATO simultaneously starts instalments for the current year — so you can face something close to eighteen months of tax inside a few months.
The fix is unglamorous: a separate account, a fixed percentage of every deposit moved across on the day it lands, and a conversation with your accountant about voluntarily entering the instalment system early to smooth it out.
The practical checklist
Once the structure is settled, the setup itself is fairly mechanical:
- ABN, TFN and — where relevant — GST registration for the operating entity
- PAYG withholding registration if you will employ anyone, including yourself through a company
- Workers compensation cover through ReturnToWorkSA
- Superannuation for employees, and for contractors engaged under contracts that are wholly or principally for their labour — a point regularly missed
- Payroll tax registration and grouping analysis if you are near the threshold or connected to other entities
- Professional indemnity, public liability and business insurance
- Medicare provider number for the new location, plus banking, practice software and a proper accounting file from day one rather than a shoebox reconstructed in October
Where we come in
The decisions that cost the most are the ones made in the first month — the structure, the contract wording, and whether payroll tax has been priced into the practice model. All three are far cheaper to get right at the start than to unwind two years later.
We work with doctors and practice owners across Adelaide, from a single practitioner leaving the hospital system to established groups restructuring their service arrangements. If you are thinking about private practice, or you are already in it and have never had the structure reviewed, get in touch and we will walk through it with you. You may also find our guides to tax mistakes Adelaide doctors make and our accounting services for medical professionals useful background.
This article is general information only and does not take into account your objectives, financial situation or needs. Tax and payroll tax outcomes depend heavily on your particular arrangements. Please seek advice specific to your circumstances before acting.
