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Medical & Healthcare Tax Guide

Tax for medical practitioners in Australia: what doctors, GPs and health professionals should know.

Employment, private practice, contracting, locum work, professional expenses, PSI, GST and practice ownership can all change the tax picture for a medical professional. This Finance in Life guide explains the key areas worth understanding.

Medical practitioner reviewing paperwork at a desk with a laptop
Tax and accounting for Australian medical professionals

Two doctors earning a similar amount can have very different tax and accounting obligations depending on whether they are employees, contractors, sole practitioners or owners of a medical practice. Understanding that distinction is often more important than simply looking for deductions at the end of the year.

01
Your engagement model matters Salary, contracting income, locum work and practice income can have different reporting and tax consequences.
02
PSI can affect practitioners using companies or trusts Receiving income through an entity does not automatically change income generated mainly from your own skills or personal efforts into ordinary business income.
03
Medical professionals have occupation-specific deductions But normal deduction rules, work-use apportionment and record keeping still apply.
04
Not every medical transaction has the same GST treatment The service, the recipient and the arrangement can determine whether GST-free treatment applies.

Start With The Arrangement

Before thinking about tax strategies, understand how you are actually earning the income.

Medical professionals can earn income under many different arrangements. A hospital-employed specialist may receive salary and allowances, while the same practitioner might also conduct private consultations, work as a locum or hold an interest in a separate practice.

Each stream should be considered according to its actual legal and commercial arrangement rather than simply assuming all medical income is treated the same way.

Employee Salary, wages and reportable allowances are generally dealt with as employment income. Work-related deduction rules may apply to expenses you personally incur.
Independent contractor Contracting income may involve an ABN, business records, PAYG instalments and consideration of the Personal Services Income rules.
Sole practitioner A practitioner operating their own business may have business income, business deductions, GST considerations and ongoing accounting obligations.
Practice owner Owning a clinic can introduce employees, contractors, payroll, BAS, GST, equipment, premises, service arrangements and business-structure considerations.
Mixed arrangement Many doctors have more than one income source—for example public-hospital employment plus private consulting or locum activity.
Medical professional reviewing a patient form during a consultation Start with the actual working arrangement rather than the job title

Personal Services Income

A company or trust does not automatically change whose income it really is.

Personal Services Income, commonly called PSI, is income mainly generated from an individual's personal skills or efforts.

Under the ATO framework, where more than 50% of the income from a particular contract is a reward for an individual's personal efforts or skills, the income from that contract can be PSI.

That makes PSI particularly relevant for professional services where the income is closely connected with the practitioner personally performing the work.

Why PSI Matters Operating through a company, partnership or trust does not automatically prevent the PSI rules from applying.

Where the PSI rules apply, deductions can be restricted and net PSI received through a personal services entity may be attributed to the individual who generated it.

The PSI decision process

01 Is the income PSI? Consider each contract and whether the income is mainly a reward for the individual's personal skills or efforts.
02 Results test A taxpayer may self-assess as a personal services business where the results test is satisfied in relation to at least 75% of the relevant PSI.
03 80% rule If 80% or more of the PSI comes from the same entity and its associates, self-assessment using the other three PSB tests is generally unavailable.
04 Other PSB tests Where less than 80% comes from one source, the unrelated clients, employment or business premises test may be relevant.
05 PSB determination In some circumstances where self-assessment is not available, an application for a Personal Services Business Determination may be possible.
Doctor working from a medical office using a laptop

Contractors & Agencies

Multiple patients do not automatically mean multiple PSI clients.

For PSI purposes, the source of income can depend on who has the contractual obligation to pay you. This is particularly important where work is obtained through an agency, labour-hire arrangement or intermediary.

Medical contractors should assess the actual contracts and payment arrangements rather than simply counting the number of patients treated.

Work-Related Expenses

Medical professionals can have specialised expenses — but the normal deduction rules still matter.

A work expense is not deductible simply because it is common in medicine. Generally, you must have incurred the expense yourself, it must relate to earning your income, you must not have been reimbursed and you need appropriate records.

Where an expense has both work and private use, only the work-related component can generally be claimed.

01 Professional indemnity Work-related professional indemnity insurance premiums can be deductible where you personally incur them.
02 Medical publications Relevant medical journals, professional publications and subscriptions may be deductible where connected with your work.
03 Professional memberships Membership fees for relevant medical professional associations may be deductible.
04 Medical equipment Medical tools and equipment used to perform your work may be deductible immediately or over time depending on the item and applicable tax rules.
05 Phone & internet The work-related portion of phone, data and internet expenses may be deductible where supported by records showing work use.
06 PPE Work-related protective items such as gloves, masks and other qualifying protective equipment may be deductible where you incur the cost.
07 Self-education & CPD Courses and study expenses can be deductible where they have the required connection with your current employment activities and professional skills.
08 Working from home Additional running expenses may be deductible where you genuinely perform employment duties from home and meet the record-keeping requirements.
09 Car & work travel Eligible work-related travel can be deductible, but ordinary travel between home and your regular workplace is generally private.

Clothing and scrubs need particular care

Ordinary clothing is generally not deductible simply because you only wear it at work. However, qualifying protective clothing or a compulsory and sufficiently distinctive uniform may be treated differently.

Common Misunderstanding Being required to incur an expense does not automatically make the expense deductible.

For example, the ATO's medical-professional guidance states that flu shots and other vaccinations are not deductible even where they are required for work.

Medical professional using a laptop and tablet with a stethoscope Equipment, software and education may have a work-related component

Medical Practice Structure

Choose a structure for the business — not simply because one tax rate looks lower.

Medical professionals may operate as sole traders or through companies, trusts, partnerships or more complex practice arrangements. No structure is automatically best for every practitioner.

PSI, asset protection, business ownership, employees, administrative costs, succession planning and how profits are ultimately distributed can all affect the decision.

01

Sole Trader

Often administratively simpler, but business income is reported through the individual. PSI and ordinary business deduction rules may still need consideration.

02

Company

A company is a separate legal and tax entity, but using a company does not automatically prevent PSI attribution. Tax also needs to be considered when company profits are ultimately paid or distributed to individuals.

03

Trust

Trusts can provide flexibility in some genuine business arrangements, but PSI and other tax rules can restrict attempts to redirect income generated mainly from one practitioner's personal services.

04

Practice / Service Entity

Larger practices may use a separate entity to provide premises, administration, equipment and other genuine practice-management services. The arrangement and fees should reflect the actual commercial services being provided.

Related-Party Payments Paying a related person or entity does not by itself create a tax deduction.

Payments should relate to genuine services or business activity, be properly documented and be consistent with the legal and commercial arrangement.

GST & Healthcare

Many health services can be GST-free — but not every medical transaction is automatically GST-free.

Australian GST law contains specific provisions that can make qualifying medical and health services GST-free.

However, the exact service, the practitioner, the recipient of the supply and the circumstances in which the service is supplied can all matter.

Qualifying medical services Medical services satisfying the relevant GST-free conditions can be supplied without GST being charged.
Allied health services Certain listed health services may also be GST-free when the practitioner and treatment satisfy the applicable requirements.
Third-party arrangements The recipient of the supply matters. A practitioner's supply to a clinic or other business may have different GST treatment from the clinic's supply to the patient.
Mixed practices A practice may have both GST-free and taxable supplies, for example where it provides additional services or sells goods that do not qualify for GST-free treatment.
GST credits GST-free sales are different from input-taxed sales. A business can generally claim GST credits on creditable purchases relating to its GST-free sales.
Important GST Point “The patient received healthcare” is not always enough to determine the GST treatment of every payment in the arrangement.

Practice-management fees, practitioner-to-clinic supplies, goods and other non-patient transactions should be considered separately.

Medical professionals reviewing paperwork inside a clinic Clinic arrangements can contain more than one separate supply

Super & High Income

High income can make superannuation tax rules more relevant.

Concessional super contributions can include employer contributions, salary sacrifice contributions and eligible personal contributions claimed as a tax deduction.

Annual contribution caps apply and should be checked for the relevant income year before making additional contributions.

01

Annual Contribution Caps

Employer, salary-sacrifice and deductible personal concessional contributions are counted towards the applicable concessional contributions cap.

02

Carry-Forward Rules

Eligible individuals may be able to use unused concessional cap amounts from earlier years, subject to the relevant conditions.

03

Division 293

High-income individuals can face an additional 15% Division 293 tax where the relevant Division 293 income and concessional contributions exceed the applicable $250,000 threshold.

04

Timing & Documentation

Personal deductible contribution claims require the relevant superannuation notice and acknowledgement requirements to be satisfied.

Don't Chase A Deduction In Isolation Superannuation decisions should be considered alongside contribution caps, cash flow and longer-term circumstances.

The tax deduction is only one part of the decision and superannuation money is subject to preservation and other super rules.

CGT & Practice Goodwill

Building a medical practice can create value — and selling that value can have CGT consequences.

A medical practice sale may involve goodwill, equipment, premises, shares, units or other business assets.

The tax treatment depends on what is actually being sold, which entity owns the relevant asset and the circumstances of the transaction.

Eligible businesses may potentially access the small business CGT concessions under Division 152 where the required basic and concession-specific conditions are met.

  • Small business 15-year exemption
  • Small business 50% active asset reduction
  • Small business retirement exemption
  • Small business rollover
Practice Sale Planning Do not assume that selling a practice automatically qualifies for the small business CGT concessions.

Ownership, turnover or net asset tests, active asset history and additional conditions can all affect eligibility.

We have a separate Finance in Life guide covering these concessions in more detail.

Read: Small Business CGT Concessions When Selling a Business →

Locum & Contracting Income

Working across several clinics can make the tax picture more complicated.

Locum practitioners may work through hospitals, clinics, agencies or direct contracting arrangements. The treatment depends on the actual relationship and contract involved.

Some income may be salary or wages. Other income may be business or contracting income requiring separate records, an ABN and consideration of PAYG instalments.

PSI can also be relevant

Where locum contracting income is mainly generated from the practitioner's own skills and efforts, PSI should be considered.

Particular care is needed where work comes through an agency. For the PSI 80% rule, the source of the income may be the entity contractually required to pay the practitioner rather than each hospital or patient where the work is ultimately performed.

Travel Working at more than one location does not make every journey deductible.

Travel between workplaces and travel away for work can have different treatment from ordinary home-to-work travel. The facts of the employment or contracting arrangement matter.

Record Keeping

Good tax outcomes still depend on good financial records.

Medical professionals often have multiple income sources, professional expenses and mixed work/private expenditure. Keeping those records throughout the year can make the tax return easier to prepare and claims easier to support.

01 Income statements Salary, allowances and other employment information.
02 Contracting income Invoices, remittances, agency statements and business bank records for private or locum work.
03 Professional expenses Memberships, professional indemnity, medical publications, CPD and other qualifying costs.
04 Equipment Purchase invoices and records supporting the business or work-related use of medical and electronic equipment.
05 Car & travel Records required for the particular method used to calculate an eligible work-related car or travel claim.
06 Working from home Records of qualifying work hours and expenses required for the calculation method being used.
07 Business structure records Contracts, service agreements, company or trust records and documents supporting related-party arrangements.

Common mistakes to avoid

  • Assuming a company or trust automatically avoids PSI.
  • Claiming an expense simply because it is common in the medical profession.
  • Claiming private use of phones, internet, vehicles or equipment as work-related.
  • Claiming ordinary home-to-work travel.
  • Treating all clothing or scrubs as automatically deductible.
  • Assuming every service provided by a medical practice is GST-free.
  • Ignoring who the recipient of a health-service supply actually is for GST purposes.
  • Failing to consider Division 293 when income is high.
  • Waiting until a medical practice is being sold before reviewing the CGT position.

Medical Practitioner Tax Checklist

Before tax time, review the complete picture.

01 Separate employment income from private practice, contractor or locum income.
02 Review allowances and reimbursements before claiming associated expenses.
03 If contracting through an entity, consider whether the income is Personal Services Income.
04 Review professional indemnity, memberships, medical journals, equipment and eligible self-education.
05 Apportion phone, internet, equipment, vehicle and other mixed-use expenses between work and private use.
06 Review whether your practice supplies are GST-free, taxable or a mixture of both.
07 Check the recipient of the supply where practitioners provide services through a clinic or other entity.
08 Review super contribution caps before making additional concessional contributions.
09 Consider Division 293 if your relevant income and concessional contributions are around or above the applicable threshold.
10 If you own a practice, keep business, service agreement, payroll, BAS and entity records organised throughout the year.
11 If a practice sale is being considered, review CGT before the transaction structure is finalised.
Doctor using a laptop at a desk in a medical office

Finance in Life

Medical work can involve more than one kind of tax return.

Employment, private practice, contracting and clinic ownership can create very different accounting needs. Finance in Life can help you work through the areas relevant to your particular circumstances.

Personal Tax → Business Tax → Bookkeeping, BAS & Payroll → Business Advisory → Contact Finance in Life →

Medical Practitioner Tax FAQs

Common tax questions from Australian medical professionals.

The ATO identifies professional indemnity insurance as an expense medical professionals may be able to claim where it relates to their employment and they personally incur the expense without reimbursement.
Self-education expenses may be deductible where the study has the required connection with the skills or knowledge used in your current income-earning activities. The particular course and associated expenses should be assessed individually.
No. PSI can be earned through a company, partnership or trust. The analysis focuses on how the income is generated and whether the PSI and personal services business rules apply to the relevant individual.
No. Many qualifying medical and health services can be GST-free, but the GST treatment depends on the relevant statutory conditions, the service being provided and in some cases the recipient of the supply.
GST-free sales are different from input-taxed sales. Subject to the normal GST credit rules, GST credits can generally be available for creditable purchases relating to GST-free sales.
Ordinary travel between home and a regular workplace is generally private and not deductible. Different rules can apply to eligible work-related travel, so the particular journey and work arrangement need to be considered.
Division 293 is an additional tax that can apply to concessional super contributions of higher-income individuals. The ATO currently uses a $250,000 threshold based on the relevant Division 293 income and super contribution calculation.
General Information

This article provides general information only and does not take into account your individual circumstances. The treatment of medical income, work-related expenses, Personal Services Income, GST, superannuation, business structures and capital gains can depend on the relevant contracts, entity structure, services provided, records and applicable tax law. Consider obtaining advice relevant to your circumstances before making tax or business decisions.

Medical & Healthcare Tax

Your clinical work may be complex. Your accounting should be clear.

Contact Finance in Life if you need help understanding medical income, deductions, contracting, PSI, GST or the accounting requirements of your practice.

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