A typical profile of a medical practitioner

Once established in their fields of specialisation, medical practitioners will likely have higher earning potential than many other professions. However, the training trajectory of a surgeon is long; they begin their careers later, often with large study debt incurred.

Medical practitioners will then typically have less available time than many other professionals to manage and implement their own financial strategy. Further, due to the long training trajectory, they can often fall into a pattern of financial complacency or overspending.

However, with careful financial management across the following areas, medical practitioners can greatly improve their level of financial security for both themselves and their families.

Tax

Although many consider tax a necessary evil, it is one of the major financial challenges encountered by senior medical practitioners.

The Federal Budget 2014-15 introduced a Temporary Budget Repair Levy of 2 per cent applicable on taxable income in excess $180,000. This in effect increases the highest marginal tax rate from 45% to 47% (before Medicare) and takes effect over three years, beginning July 1, 2014 until June 30, 2017. It means that even though as a medical practitioner you may be earning $500,000 annually, you’re only taking home just over $285,000.

One possible solution to minimise the impact of taxation on salary is to establish appropriate tax structures, for example a self-managed superannuation fund (SMSF).

Investment income within a SMSF is taxed at a maximum rate of 15 per cent, and capital gains are taxed at 10 per cent. On retirement, there is potential for investment income and capital gains to be completely exempt from tax.

Potential advantages of an SMSF to a medical practitioner

SMSFs can provide greater control and flexibility when compared to public offer superannuation funds. The flexibility that an SMSF allows a trustee can include the ability to purchase direct shares and property, and to tailor an investment strategy that relates specifically to the medical practitioner’s individual objectives and requirements. 

SMSFs are generally excluded from transacting with a related party. For example, an SMSF is unable to purchase a residential property and then lease it to a trustee, member or relative.  However, there is an exemption in the context of business real property. The business real property exemption enables medical practitioners to either use their SMSF to purchase a consulting suite, or transfer the ownership of a personally held consulting suite into an SMSF.

The advantage of transferring ownership to an SMSF is that rental income is taxed at 15 percent, compared to marginal rates of up to 49 per cent. Capital gains from the potential future sale would be taxed at a maximum rate of 10 per cent compare to up to 24.5 per cent if held personally. Further, although there may be capital gains tax implications from transferring the ownership of ‘business real property’ to a SMSF, medical practitioners may also be eligible for stamp duty exemption.

The benefit of advice

Medical practitioners that fail to seek financial advice early on in their career often regret this later. Seeking independent financial advice early on will help medical practitioners develop financial literacy, provide a clear strategy based on the individual’s goals and objectives, can reduce the time taken to reach a comfortable retirement nest egg, and most importantly of all provide peace of mind.

Hewison Private Wealth provides wealth management services to many medical practitioners. If you would like further information, please contact us on (03) 9682 1900.

The information provided above is general information only and individuals should seek specialised advice from a qualified financial adviser.

Please contact Hewison Private Wealth for more information.