Service Entity Structures for Doctors Explained

As a doctor, asset protection is paramount. You work in a high-litigation environment. Holding assets in your own name is risky. This is where the Service Entity structure comes in.

A Service Entity (usually a Family Trust) separates the business assets and operations from the medical practice itself.

How It Works

Imagine your practice has two parts:

1. The Medical Practice: You (the doctor) generate income by seeing patients.
2. The Service Entity: This entity owns the equipment, holds the lease, employs the reception staff, and pays the electricity.

The Service Entity charges the Doctor a "Service Fee" (e.g., 35% of billings) to cover these costs plus a profit margin. This moves income from the high-tax environment of the doctor (top marginal rate) to the Trust, where it can be distributed to family members (if eligible).

The ATO & TR 2006/2

The Australian Taxation Office (ATO) watches this arrangement closely. The Service Fee must be commercially realistic. You cannot simply charge 90% of your income to the trust to avoid tax.

The ATO ruling TR 2006/2 provides "Safe Harbour" rates. For example, a typical GP practice might have a commercially acceptable service fee of 30-40%. Anything higher requires detailed proof of costs.

Benefits of a Service Trust

• Asset Protection: If the doctor is sued, the assets (medical equipment, cash in the trust) are generally protected as they belong to a separate entity.
• Income Streaming: Profits in the Service Trust are not "Personal Services Income" (PSI), meaning they can often be distributed to lower-taxed beneficiaries.