Medical Doctor – PSI Income and Company Setup (Q&A)
Q: A medical doctor (GP) works for three medical practices, invoicing through his company. After service fees are deducted, all income received is 100% Personal Services Income (PSI). Would this PSI income pass the results test or other PSB tests?
A:
The results test (s87-18 ITAA 1997) is the key test for determining if PSI can be treated as a Personal Services Business (PSB). To pass, at least 75% of the PSI must meet all three conditions:
Payment is for producing a result (not just for time worked).
The practitioner provides their own equipment/tools.
They are liable for rectifying defective work.
For medical practitioners, payment is often linked to consultations, which may help satisfy the “result” condition. However, if the practitioner is paid on a daily/hourly basis regardless of results, the test may fail.
👉 See ATO guidance: Results test
Q: If the doctor qualifies as a PSB, can the company retain profits instead of paying them out?
A:
The ATO’s position is strict: PSI profits should generally be taxed in the hands of the individual who performed the work. Retaining profits in the company risks triggering Part IVA (anti-avoidance).
Profits should normally be paid as salary, wages, or promptly as dividends.
If profits remain in the company without distribution, the ATO may apply anti-avoidance rules.
👉 Reference: ATO PSI anti-avoidance guidance
Q: What if we create a service trust to provide admin support, staff, leases, equipment etc., and charge a service fee of 30%? Can that profit be income split among family members?
A:
Service entity arrangements are common but must be carefully structured.
The ATO has detailed guidance on service entities for medical practices.
For GPs, fees around 40–45% of gross practice fees are usually considered low risk. Specialists face stricter scrutiny and need strong comparable market evidence.
If service fees are excessive, deductions may be denied, or Part IVA could apply.
If the trust makes a genuine profit, that profit can potentially be distributed to family members—but it must be commercially justifiable.
👉 Reference: Service entity arrangements | ATO
Q: Can the medical practice itself pay service fees to the service trust, which then on-charges to the company?
A:
Yes, but the same principles apply. The arrangement must:
Be supported by independent market evidence.
Reflect real commercial services.
Stay within the ATO’s “low risk” indicative ranges.
Both the company and trust need to consider the ATO’s professional firm profit allocation guidance (PCG 2021/4), as profits from service entities are also taken into account.
Q: What is the latest ATO guidance on whether a contractor is deemed an employee for super and PAYG withholding purposes?
A:
The ATO released TR 2023/4 on PAYG withholding, which draws on recent High Court cases. While the superannuation ruling is not yet updated, similar logic is expected.
Key points:
Look at the actual contract terms and working relationship.
Factors include control, independence, ability to delegate, and risk.
Contractors may still be treated as employees for super and PAYG in some circumstances.
For medical practitioners, PSI and service entity rules are complex, with strict ATO expectations. Structures should be carefully reviewed to manage compliance risks while achieving any tax efficiency. If you are uncertain, don’t take any chances and feel free to contact us to take advantage of our Business Advisory expertise.