Every few months a doctor sits across from me and says some version of the same thing: “A colleague told me I should be running my income through a trust.”
It’s a fair question, and the answer is more nuanced than most people expect. Service entity arrangements are perfectly legitimate — the ATO has said so since the 1970s. But the version of the structure that sat comfortably in 2005 will not survive a review in 2026, and there are two significant developments practitioners need to be across. Here’s where the line sits now.
What a service trust actually does
A service trust doesn’t earn your professional fees. That’s the single most important thing to understand.
You, as the practitioner, earn the income from treating patients. The service trust employs the support staff, owns or leases the equipment and premises, handles the billing and reception, and charges your practice a fee for providing all of that. The trust makes a profit on those services, and that profit can be distributed to beneficiaries — often a spouse or a family trust — at their marginal rates.
The tax benefit comes from the service margin, not from redirecting your clinical income. Arrangements that try to do the latter are where practices get into trouble.
The fee has to be commercial — and the ATO has told us what that looks like
The services have to be real. The trust needs actual staff, actual assets, actual invoices, and a written service agreement that reflects what genuinely happens. A trust with no employees charging a large “management fee” is not a service entity — it’s a deduction waiting to be denied.
Beyond that, the fee itself has to stack up. Ruling TR 2006/2 and the ATO’s Your service entity arrangements guide set out indicative rates — not a safe harbour, but a signal that the arrangement is unlikely to justify audit activity. For medical practices specifically, the guide accepts a service fee of up to 40% of gross practice fees where the entity provides a full suite of services, and up to 45% for rural and sole practitioners. So charging a percentage of gross fees isn’t the problem — it’s the ATO’s own indicative method for medical arrangements.
Two things routinely get missed:
- The 30% profit condition. No more than 30% of the combined profits of the practice and the service entity should end up in the service entity. Get the percentage right but the profit split wrong and you’re outside the guidance.
- Different benchmarks for different services. Where the entity on-hires staff rather than providing the full suite, the benchmark is a gross markup of up to 30% on the salary and benefits of those staff — with equipment hire capped at a 10% markup on the entity’s cost of the equipment, and rent at market rates.
A useful sanity check: if you paid an unrelated commercial provider to do the same work, would the price be roughly the same? If not, the fee is the problem.
PCG 2021/4 — and now PCG 2025/5
The ATO’s guideline on the allocation of professional firm profits has applied to all arrangements since 1 July 2024, including long-standing ones. Medical practitioners are expressly within scope where the doctor holds an equity interest in the practice.
It works in two stages. First, two gateways: the arrangement needs a genuine commercial rationale, and it must not contain high-risk features such as non-arm’s-length financing or artificial complexity. Fail either and you’re outside the low-risk zone regardless of the numbers.
Clear the gateways and you self-assess against the proportion of firm profit returned in your own hands, your effective tax rate across the group, and — where a commercial benchmark is available — your remuneration against that benchmark. Land in the green zone and the ATO is unlikely to allocate compliance resources to you.
Importantly, PCG 2021/4 doesn’t apply where the personal services income rules bite. That gap is now filled: in late 2025 the ATO issued PCG 2025/5, setting out its Part IVA compliance approach to personal services businesses that retain or split income. Doctors and dentists are named. There’s a transitional window to 30 June 2027 to move arrangements into the low-risk category — which makes this the year to review, not next year.
Don’t forget payroll tax
This is where I see the most avoidable damage in South Australia. A service entity employing practice staff will be grouped with the practice for payroll tax — the Commissioner’s discretion to exclude requires the businesses to be independent and unconnected, which a service entity by definition is not.
Since 1 July 2024 there is a proportional exemption for GP wages based on the practice’s bulk billing rate, which helps some practices considerably. But it applies to GP wages only — not nurses, reception, admin or allied health — and there is no ongoing exemption for contracted specialists or dentists. Relief for those groups was retrospective only. Setting up a service trust without modelling payroll tax can wipe out the income tax benefit entirely.
So — is it worth it?
For a practitioner running a genuine practice with staff, premises and equipment, a properly structured service entity remains one of the more effective and defensible structures available. Asset protection, a clean home for practice assets, and a legitimate margin that can be distributed.
For a doctor contracting at someone else’s clinic with no staff and no equipment, the answer is usually no. There’s nothing for the trust to provide, so there’s no commercial fee to charge — and the PSI rules will generally attribute the income back to the doctor personally anyway.
The structure isn’t the strategy. What matters is whether the arrangement reflects something real, and whether you can still explain it clearly three years from now when someone from the ATO asks.
If you have a service arrangement that hasn’t been reviewed since it was set up, it’s worth a look — many were built under the old rules and have quietly drifted out of shape, and the PCG 2025/5 transitional window closes 30 June 2027. We work with medical practitioners across Adelaide on practice structuring and are happy to review what you have.
Nitschke Nancarrow Chartered Accountants
338 Glen Osmond Road, Myrtle Bank SA 5064
1300 059 670
This article is general information only and does not take your personal circumstances into account. Please seek advice specific to your situation before acting.
