Below is a checklist of areas to consider when moving into private practice.
The below is not an exhaustive list and should be worked on with your accountant. It is recommended that you speak to an accountant who specialises in this area so they can correctly guide you through these various stages.
- You need to consider which structure (entity) is most suitable for your operations and personal circumstances. Options include sole trader, company and trust.
- ABN: to operate a business, the entity must register for an Australian Business Number (ABN) with the Australian Taxation Office (ATO).
- GST: where business turnover is expected to exceed $75,000 in a 12 month period, the entity must also register for Goods & Services Tax (GST) with the ATO. This results in an obligation to lodge Business Activity Statements.
- Penalties: Significant penalties can result if registration is not attended to correctly.
- Business Activity Statements (BAS) are lodged quarterly or monthly, and report total sales, GST on sales, and GST on purchases, to the ATO. Where you employ staff, you will also need to report gross wages and tax withheld on these wages.
- BASs can be lodged directly by the medico to the Tax Office or via an accountant.
- Tax withholding: as no tax is withheld from business income you are earning, the responsibility is on you to save appropriately for the tax payable. We can assist with calculating this and we can also help monitor your tax savings throughout the financial year.
- PAYG instalments: once you lodge your first tax return with income earned under an ABN, you will enter the Pay As You Go (PAYG) instalment system. This is a prepayment of tax, and will reduce the tax payable when you lodge your next tax return. The PAYG instalments will appear on the quarterly BASs and are due 28 days after the end of each quarter. It is important to be managing the tax payable correctly, as instalments also need to be managed throughout the year.
- Superannuation: if you wish to make super contributions, this is funded from your net pay. The net pay is the money you have earned in the bank account, after business expenses and after allowing for tax savings. A maximum of $25,000 per year can be contributed to super, which includes any employer contributions. It is important that superannuation contributions are received by the superannuation fund prior to 30 June each year, to enable the deduction to fall within that financial year. Otherwise, the deduction is moved into the next financial year.
Small Business Concessions
- Instant asset write-off: under the small business instant asset write-off, there is currently no limit on the cost of the asset which may be claimed. These rules are legislated until 30 June 2022. This applies to all work-related equipment purchased including mobile phones/iPads/computers.
- Prepaid expenses: can be immediately deducted if relating to a period of 12 months or less. Examples include Insurance, Medical Registrations and interest on business loans.
- Small business income tax offset: offset of up to $1,000 available where business turnover is less than $5 million for sole traders or trust beneficiaries.
All same deductions are applicable (per allowable deductions for employed doctors) except:
- Professional library: books can be claimed in the year they are purchased.
- Mobile phones/iPads/computers/other work-related equipment: are subject to instant asset write-off rules.
- Service fees: you may incur service fees payable to the clinic you consult from. Service fees are deductible and an input tax credit can be claimed if your business is registered for GST.