1. FINANCIAL PLANNING FOR YOUNGER DOCTORS
NOVEMBER 2007

2. Our message to you
1 Use trust based structures to own your own practice as soon as possible, developing the practice as a business if possible, and paying particular attention to:
owning your car tax efficiently;
owning your home tax efficiently;
using all other available tax planning options.
2 Do not trust anyone with your money
3 Do not invest in anything that pays anyone a commission
4 Do not work too hard

3. Sources of Information
Username: “mcmclient” password: “welcome”
Financial Planning for Foreign Trained Doctors
The Doctors’ Guide to Starting a Practice
The Doctors’ Guide to Financial Planning
No charge for consultations with registrars: allow two hours to cover the ground

4. Should you start your own practice?
Net income is higher
Tax planning is better
If your practice is a business, tax planning is even better; but
Some say hospital appointments provide better quality clinical work and less administration work
Its not all about money

5. Practice options 1 An employee 2 An independent contractor 3 A locum
4 an owner of a PSI practice
5 on owner of a business practice

6. Five options for legal structure
1 Own name
2 Company, with no profit retention
3 Company, with profit retention
4 PSI practice trust
5 Family trust

7. TABLE OF OPTIONS Engagement type IndividuaL Practice Trust
Practice company
Independent contractor
Yes, provided it is a PSI practice trust
Yes, provided no retention of profit
Locum
Owner, practice is not a business
Yes
Owner. Practice is a business
Yes. Can be a family trust deed
Yes. Profits can be retained
Employee No

8. In summary
We recommend young specialists start their own practice as soon as possible and develop it to be a business for tax purposes and use a practice trust based ownership structure
At least start a part time practice
Why do we recommend this?
Because the tax planning is better, particular for cars and home ownership, which leads to a better material quality of life

9. Tax planning issues Car deductions Cash flow management techniques to:
create space for a deposit on a home or for significant repayment of non-deductible debt
generally reduce after tax cost of debt
Income splitting to spouses
Better superannuation including superannuating an employee spouse

10. Owning a car or cars
See Part 4, Financial Planning for Foreign Trained Doctors for more detail
Main points:
home to work is business travel due to carriage of bulky medical equipment and/or potentially offensive or embarassing items
no limit on number of company cars
second car taken as a fringe benefit under statutory method
GST on cost of car if bought by a GST registered entity

11. Cash flow management
See Part 5 of Financial Planning for Foreign Trained Doctors for detailed explanation
In summary:
the change from being an employee to being self-employed via a PT creates a significant tax deferral of up to 22 months,
enhanced cash flow is used to create a deposit and/or pay off a non-deductible home loan asap,
when the tax bill comes in, borrow to pay it. ATO accepts interest on amount borrowed is deductible,
generally borrow to pay tax deductible outgoings, and preserve your cash to pay off the non-deductible home loan.

12. Diagram: Cash flow management
Soontobe Medical Pty Ltd as the trustee for the Soontobe Medical Trust. Derives all practice income, pays all costs using tax deductible debt, and then distributes cash and net income to doctor owner
Pays all practice costs plus salary to spouse with debt
Derives all cash/practice income
Pays tax for doctor with debt
Pays super for Soontobee and spouse
Borrows from bank to pay all outgoings
Provides car fringe benefits
Distributes cash and net income to Soontobe and then to spouse.
Spouse uses cash to pay off non-deductible debts and pay living costs

13. Other tax planning options
overseas and extended domestic travel;
employing spouses and other family members;
superannuation contributions for the doctor;
superannuation contributions for related persons;
super co-contributions for children and other relatives;
ownership of related businesses;
double deduction for lap top computers, PDAs and brief cases; and
various other minor tax planning devices including:
dedicated credit card interest and charges,
laundry costs,
protective shoes,
mobile phone,
home internet connection,
home office depreciation of plant and equipment, and
newspapers and magazines
Intergenerational financial planning issues, including tax efficient support for older parents and other family members

14. Superannuation planning
Pay maximum superannuation contributions each year, using deductible debt if necessary
$50,000 a year every year
Superannuate your spouse as well
Hesta and Health Super are good funds
Self-managed funds are probably better, investing in:
small number of Australian shares; and/or
Vanguard Index Australian Shares Fund
See client only section for more details