For a GP, specialist or allied health practitioner, choosing the right structure can have a major impact on tax, cash flow, asset ownership and what happens when the practice grows.
But there is no universal “best structure” for doctors.
A company, discretionary trust, partnership or service entity may each make sense in different circumstances. The critical question is not simply “Which structure pays the least tax?” It is “Which structure reflects how the practice actually operates and remains defensible under the tax rules?”
For 2026–27, that means paying particular attention to personal services income (PSI), service-entity arrangements, trust distributions, Division 7A, section 100A and the general anti-avoidance rules.
This guide explains the main options without turning your medical practice into a tax experiment.
Why Structure Matters for Medical Practitioners
For 2026–27, Australian resident individuals pay a top marginal income tax rate of 45% on taxable income above $190,000. The Medicare levy generally adds another 2% where the full levy applies.
That makes structure an important consideration for higher-income practitioners. But a medical practitioner cannot simply place clinical billings into a company or family trust and distribute the income to whoever has the lowest tax rate.
The ATO’s PSI rules are specifically designed to stop individuals from alienating or splitting income that is mainly a reward for their own personal efforts or skills. Medical practitioners are expressly recognised by the ATO as a profession where PSI can arise.
The ATO’s Personal Services Income Taxation Ruling TR 2022/3 explains how PSI is identified and how the personal services business tests apply.
The Service Entity Model for Medical Practices
A service entity is a separate company or trust that provides genuine services to a medical practice. Depending on the arrangement, those services might include:
- practice premises
- reception and administration staff
- practice management
- equipment
- IT and software
- bookkeeping and payroll
- marketing
- nursing and support staff
- other infrastructure required to operate the practice.
The practitioner or practice pays the service entity for those services.
The important point is that the fee needs to have a genuine commercial basis. You cannot simply choose a percentage of medical billings because it produces a desirable tax result.
The ATO has specific guidance on service entities, including examples involving medical practices. In one ATO medical-practice example, a service entity provides a comprehensive suite of practice services and charges a fee based on gross practice fees. The ATO also provides examples where a percentage-based fee is inappropriate because the service entity provides only limited services.
The lesson is simple: The service fee should follow the services being provided — not the tax outcome you want.
PSI: The Rule Doctors Cannot Ignore
Personal services income is income that is mainly a reward for an individual’s personal efforts or skills.
That is highly relevant to medical professionals because the income from seeing patients, making diagnoses, performing procedures or providing professional advice can be closely connected to the practitioner’s personal expertise.
The fact that the income is received by a company or trust does not automatically change its character.
The ATO states that where a company, partnership or trust receives PSI, the PSI rules can attribute the net PSI back to the individual who performed the work unless the relevant personal services business requirements are satisfied.
There are four personal services business tests:
- Results test
- Unrelated clients test
- Employment test
- Business premises test
Whether a practitioner satisfies one of these tests depends on the actual circumstances.
That is why simply incorporating a medical practice does not automatically turn professional income into ordinary business income.
What About a Family Trust?
A discretionary trust can provide flexibility because, where income is available for distribution and the tax rules permit it, different beneficiaries may be taxed on their allocated share at their applicable marginal rates.
But a family trust is not a shortcut around PSI.
If a doctor’s clinical income is PSI and the PSI rules apply, the income cannot simply be distributed to a spouse or adult child to achieve a lower tax rate.
This is one of the most important distinctions in medical-practice structuring: Family trust distributions do not automatically make personal professional income splitable income.
A trust can still have a legitimate role in a wider practice structure, but the nature of each income stream needs to be understood first.
You can also read our guide to Trust vs Company for a broader comparison of the two structures.
Company vs Trust: Which Is Better for a Doctor?
Company
A company can be useful where the practice needs a separate legal entity, wants to retain profits or expects to bring in additional practitioners or investors.
An eligible base-rate entity generally pays company tax at 25%, subject to the relevant turnover and passive-income requirements. Companies that do not qualify for the base rate generally pay 30%.
However, company profits do not magically become personal money. When profits are extracted by shareholders, further tax considerations can arise, including franking credits and the shareholder’s personal tax position.
Discretionary Trust
A discretionary trust can provide greater flexibility around distributions where the income is legally available for distribution and the relevant tax rules are satisfied.
Eligible trusts can also access the 50% CGT discount on qualifying capital gains where the conditions are met.
However, trusts require careful administration. Distribution resolutions, trust deeds, beneficiary entitlements and tax integrity rules all matter.
Trust with a Corporate Beneficiary
Some practices consider using a company as a beneficiary of a discretionary trust to retain certain profits at the applicable company tax rate.
But calling this a “bucket company strategy” should never mean simply: “Put the profit in a trust, distribute it to a company and pay 25%.”
The underlying income must be capable of being distributed that way, and additional rules can become relevant, including Division 7A and section 100A depending on what happens to the entitlement and the money.
This is one reason a structure should be designed before transactions occur rather than copied from another practitioner.
The ATO’s View of Medical Service Fees
A particularly important point for doctors is that there is no universal safe percentage for service fees.
The ATO’s medical-practice case studies show why.
Where a service entity genuinely provides a comprehensive suite of services and effectively runs the infrastructure of the practice, the ATO has accepted percentage-based fees in appropriate circumstances.
But where a service entity provides only a receptionist and premises, charging a large percentage of the doctor’s gross billings may not be commercially supportable.
In other words: A 40% fee is not automatically acceptable. A 30% fee is not automatically acceptable. A fixed $100,000 fee is not automatically acceptable.
The fee needs to be supported by the actual services, costs, risk and commercial arrangements.
What About Asset Protection?
Structure can also affect how assets and liabilities are held, but tax and asset protection are separate questions.
A company is a separate legal entity and may assist with separating business liabilities from personally owned assets. A corporate trustee can also be useful when operating a trust.
But no structure provides absolute asset protection.
Personal guarantees, director liabilities, professional negligence, financing arrangements, ownership of assets and how contracts are entered into all matter.
For medical practitioners, professional indemnity and the way the practice is actually operated also need to be considered alongside the tax structure.
The Structure Should Follow the Practice
A better approach is to start with the economics of the practice rather than the tax rate. Ask:
- Who contracts with patients and referrers?
- Who employs the reception and clinical support staff?
- Who owns the equipment?
- Who leases the premises?
- Who carries the business expenses and commercial risks?
- Who receives the clinical income?
- What services does a separate service entity genuinely provide?
- Will profits be distributed or retained?
Once those questions are answered, the appropriate structure becomes much easier to model.
A Practical Structure Review for Doctors
A proper medical-practice structure review should normally cover five areas.
1. Identify the income: Separate clinical income from other income streams such as rent, management fees, education, consulting or investment income.
2. Test the PSI position: Determine whether the income is PSI and whether one of the personal services business tests is satisfied.
3. Review the service arrangement: If a service entity is involved, document exactly what it provides and how its fees are calculated.
4. Model the tax outcome: Compare realistic alternatives rather than assuming a trust or company will automatically produce a better result. That can include an individual structure, company, trust, partnership or service-entity arrangement.
5. Check the integrity rules: Where trust distributions or corporate beneficiaries are involved, consider the broader rules, including section 100A, Division 7A and Part IVA, as relevant.
When Should You Review Your Structure?
The best time to review a medical practice structure is before a major change, not after the income has already been earned.
That could mean:
- starting a new practice
- buying into an existing practice
- bringing in another practitioner
- opening a second location
- adding new services
- purchasing a practice
- selling or restructuring the practice
- moving from employment into private practice
- retaining significant profits in the business.
A structure that worked when you were a solo practitioner may not remain appropriate once you have several doctors, employees, multiple locations and substantial retained earnings.
For broader planning, see our tax planning service, where structure, trust distributions, super, Division 7A and other planning decisions can be modelled together.
The Bottom Line
There is no “doctor tax structure” that automatically works for everyone.
A discretionary trust may be appropriate in one situation. A company may make more sense in another. A service entity can be useful where it provides genuine practice infrastructure and charges commercially supportable fees.
The key is to separate professional income generated by the practitioner’s personal skills from genuine business and support services, then structure those activities in a way that reflects how the practice actually operates.
The ATO’s PSI and service-entity guidance should be treated as part of the starting point, not something to check after the structure has already been implemented.
We work with professionals and healthcare businesses on structure reviews, tax planning, business advisory and compliance. We can model the options around your actual income, practice arrangements and long-term plans rather than starting with a generic template.
See our company and trust setup service or speak with the team about a tailored structure review by booking a free consultation.
