Tax & GST essentials for medical professionals

Medical practitioners earn their income in many different ways. Some practise as a sole trader; others work through a personal services entity — a company or trust. Increasingly, doctors operate within shared arrangements such as associateships or as tenant-doctors. The right tax treatment turns on the type of income — chiefly whether it is personal services income.

Whichever structure you use, the law looks through to the substance of the income. Choosing a company or trust does not, on its own, change whether your earnings are personal services income — so it is worth understanding the PSI rules before settling on a structure.

Personal services income is income that is mainly (more than 50%) a reward for an individual's own personal skills and effort — whether you earn it directly or through an interposed entity. Most consulting fees and surgical fees are PSI.

Income that is generally not PSI includes:

If you are a personal services business (PSB) for the income year, the PSI rules do not restrict you. You are a PSB if you meet any one of these four tests.

There is one important limit. Under the 80% rule, if 80% or more of your PSI comes from one client and you do not meet the results test, you cannot simply self-assess as a PSB — you would need a personal services business determination from the ATO.

The more of these apply, the more likely the PSI rules restrict you — and the more it is worth a conversation. This self-check is a general guide only; it is not an ATO determination and does not decide your tax position.

A service entity — often a trust owned by a lower-risk associate — provides premises, administration, staff and equipment to the practice and charges a service fee. Used properly, this is a legitimate and common arrangement.

The fee must be commercially reasonable

A service fee is deductible only to the extent it is commercially reasonable — that is, an arm’s-length charge for what is actually provided. Inflated fees that simply shift profit to a related entity attract Part IVA, the general anti-avoidance rule, and can be unwound by the ATO.

Allocating profit is not automatically safe

Even where the PSI rules do not bite — because you are a genuine PSB, or the income comes from a real business structure — the ATO still scrutinises how profit is allocated to associates under Part IVA and its professional-firms guidance. Splitting profit among family members or related entities is not automatically safe; the arrangement needs to reflect real contributions and commercial substance.

Most genuine medical services are GST-free. Broadly, a service is GST-free where it is covered by Medicare, or where it is generally accepted in the medical profession as necessary for the appropriate treatment of the patient. For everyday patient care, that usually means no GST applies.

But not everything a practice does is GST-free. Some supplies can be taxable, including:

We advise on the right structure for how you practise, test whether the PSI rules apply to you, design compliant service-entity and profit-allocation arrangements, and get your GST classification and registration right — so your tax position matches the way you actually work.

Talk to us Read the ATO's personal services income guidance

Personal services income (PSI)

Income that is mainly (more than 50%) a reward for an individual's personal skills and effort, whether earned directly or through an interposed entity.

Personal services business (PSB)

A status, met by passing any one of four tests for the income year, under which the PSI rules do not restrict how the income is taxed.

Results test

A PSB test met where you are paid to produce a result, supply your own tools and equipment, and are liable to rectify defective work at your own cost.

Part IVA

The general anti-avoidance rule in the tax law, which lets the ATO unwind arrangements entered into mainly to obtain a tax benefit — including inflated service fees or artificial profit splits.

Service entity

An entity (often a trust) that provides premises, staff, administration and equipment to a practice and charges a commercially reasonable service fee.

Associateship

An arrangement where practitioners share premises, staff and administration through a service entity while each continues to run their own practice.

GST-free supply

A supply on which no GST is charged but for which the supplier can still claim GST credits — most genuine medical services are GST-free.

Personal services entity

A company, partnership or trust through which an individual provides their personal services — the income may still be attributed to the individual under the PSI rules.