We have found a lot of professional professionals such as Doctors, Lawyers, Consultants, Engineers, etc end up with a big tax bill when they lodged their annual tax return. In practice, we do have a few strategies can apply to give a better result to the tax returns of those professional practitioners. One of them is to form an appropriate structure for the business such as Partnership, Company or Trust. The other one is to contribute some of the income into a complied Super Fund. This portion of contribution can be claimed as a deduction against their assessable income. For 2014 – 2015, $30,000 is allowed to contribute to the complied Super Fund under a concessional rate 15% for ages under 49 and $35,000 for ages over 49 and under 75 (ages between 65 – 75 is subject to work test). To simplify showing how this works, we have demonstrated a typical example as below:
A GP is earning $350,000 for the year. The tax consequence is varied under different arrangements. (Rates are the current rates of 2014-15)
|
Sole Trader |
Company |
|
|
GP |
350,000 |
175,000 |
|
Employee salary |
50,000 |
|
|
Superannuation (taxed at 15%) |
60,000 (30,000 for GP and employee each) |
|
|
Company (taxed at 30%) |
65,000 |
|
|
a) Tax on taxable income |
131,000 |
79,500 |
|
b) Budget repair levy (2%) |
7,000 |
0 |
|
c) Medicare levy (2%) |
7,000 |
4500 |
|
Total tax liability a + b + c |
145,000 |
84,000 ( + 9000 super tax paid in Super fund) |
While it is obvious to see the dramatic differences between the two arrangements and many of you may already be splitting your income this way but there are still a lot of medical professionals in particular that are running their tax affairs based on laws from the 1980s however since 2008, ATO has observed an increase in the use of business structure and realised although there these old cases provide some overarching principles to follow, none of them are up to date with the modern arrangements by the professional practitioners so there is uncertainty with regards to the appropriate level of alienation of professional income.
Because of this the ATO has introduced some guidelines to assess the risk of such arrangement which aimed to balance the state of the law and the commercial reality. In our Sydney Office, we understand ATO’s current policy and keep update with the changing rules. Therefore, we can not only set up an appropriate tax planning for our professional practitioner clients to maximise their tax benefit but also protect them from targeted as a high risk class by ATO.
To book a confidential appointment, please call us on 0433510348 or 1300627829.
MAS Tax Accountants Sydney Office । Suite 609, 368 Sussex Street, Sydney, NSW 2000
