A practical tax, cashflow and wealth comparison for Health Professionals
By Mark Churchmichael, Head of Tax & Compliance
This guide shows, in real numbers, how moving from employment into your own structured practice can change:
- tax outcomes
- cashflow
- asset ownership
- retirement wealth
It compares:
- An employed dentist on $250,000
- A dentist operating through a medical practice structure
- Buying premises through an SMSF using borrowings (LRBA + bare trust)
Scenario 1 – Employed Dentist
Income: $250,000 (PAYG)
Indicative 2026 tax position:
- Income tax + Medicare levy: ~$87,000
- After-tax income: ~$163,000
Wealth outcome:
- No business equity
- No asset ownership
- No income splitting
- No capital growth
This model provides income, not wealth creation.
Scenario 2 – Medical Practice Company + Service Trust Model
Structure (ATO-aligned)
- Medical Practice Company (MPC) – employs the doctor, nurses and clinical staff, bills patients and insurers, carries clinical risk
- Medical Services Trust (MST) – owns admin infrastructure, IT systems, non-clinical staff, marketing, reception, equipment, rooms, consumables and practice management systems
The MST charges the MPC a commercial service fee (with arm’s-length markup) for:
- premises
- equipment
- admin staff
- IT systems
- marketing
- consumables
This structure aligns with ATO guidance and case law including:
- Phillips v FCT (1978) – legitimacy of service entity structures
- ATO service trust guidelines
Key compliance principle: services must be real, priced commercially, and provided.
Operating Example (Fully Reconciled Numbers)
Gross practice income: $520,000
Medical Practice Company (MPC) costs:
- Clinical consumables: $35,000
- Insurances: $15,000
- Clinical staff: $40,000
Total MPC direct costs: $90,000
Medical Services Trust (MST) costs:
- Admin staff: $80,000
- Equipment / Rent: $60,000
- Premises/admin overheads: $30,000
- IT, billing, systems: $20,000
- Compliance, accounting, HR: $15,000
Total MST costs: $205,000
Service fee charged by MST to MPC (commercial, arm’s length): $215,000 (Provides MST with a modest commercial margin)
Profit Flow
MPC position before wages and super: $520,000 – ($90,000 + $215,000) = $215,000
Payments from MPC:
- Dr Emily Carter (dentist) salary: $185,000
- Employer superannuation: $30,000 (concessional cap)
MPC profit: $0
Employment Structure
- Dr Emily Carter – employed by Medical Practice Company (clinical role)
- James Carter – employed by Medical Services Trust (reception, billing, marketing, admin – non-medical role)
Tax Position (2026 rates)
Dr Emily Carter – salary $185,000 (MPC):
- Income tax + Medicare: ~ $53,000
- Net income: ~ $132,000
James Carter – salary $80,000 (MST, no other income):
- Income tax + Medicare: ~ $13,000
- Net income: ~ $67,000
Company tax:
- Nil (no taxable profit)
Medical Services Trust position:
- Service fee income: $215,000
- Costs: $205,000
- Trust profit: $10,000 (distributed to university-aged children at no tax)
Family Cashflow Outcome from running own practice
Dr Emily Carter net income: $132,000
James Carter net income: $67,000
Trust income (children): $10,000 (below tax threshold)
Total family cashflow: $209,000
Compared with $163,000 net employed income with Gross fees to accelerate in future years, the benefit increases.
Result: Higher income + lower effective tax + asset creation + control. Income can scale up greatly in subsequent years. Employed income is limited. Potential to sell business in the future. Cannot see your employment income.
Buying Premises Through an SMSF
Structure
- SMSF establishes a bare trust
- Property purchased via LRBA (limited recourse borrowing)
- SMSF is beneficial owner
- Loan secured only over the property
Example: Practice Premises Purchase
Purchase price:$2,000,000
SMSF deposit (30%):$600,000 (existing super balance)
SMSF loan:$1,400,000
Interest rate:7%
Annual rent (market): $140,000
SMSF Cashflow
Rental income:$140,000
Less interest:$98,000
Net income: $42,000
Tax in SMSF (accumulation @ 15%):$6,300
After-tax SMSF cashflow: $35,700 p.a.
As loan reduces:
- interest falls
- net income rises
- tax efficiency improves
Retirement Comparison
Property owned personally
- Rent taxed at marginal rate (up to 47%)
- Capital gains tax on sale
- Income fully taxable
Property owned in SMSF
- Rent taxed at 15% (accumulation)
- Rent taxed at 0% in pension phase
- Capital gains tax potentially 0% in pension phase
- Asset produces tax-free retirement income
Long-term outcome comparison
The Compounding Effect
Renting rooms:
- $140,000 p.a. × 20 years = $2.8m paid
- No asset
- No capital growth
- No retirement income
Owning via SMSF:
- Same rent
- Asset retained
- Capital growth
- Tax-free pension income
Advisory Note
These structures require:
- correct ATO compliance
- commercial lease terms
- arm’s length pricing
- LRBA compliance
- specialist structuring advice
Stewart & Smith Advisory
We specialise in:
- medical and dental practice structuring
- SMSF property strategies
- professional services business models
- retirement and succession planning
The structure you choose at the start determines the outcome at retirement.
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