featured article — Personal Services Income for Doctors & Dentists: Your Questions Answered
If you work as a doctor, dentist, locum, or contractor, particularly through a company or trust, you have certainly come across the term Personal Services Income (PSI), one of the most important tax concepts affecting healthcare professionals in Australia. For many healthcare professionals, it is one of the most misunderstood areas of Australian tax law, and getting it wrong can be costly. This guide answers the most common questions we hear from doctors and dentists about PSI rules in Australia, including what is personal services income, how the Personal Services Business (PSB) tests work, what happens if the rules apply to your income, when to seek professional advice, and more. Let’s explore answers for them here.
What is Personal Services Income (PSI)?
Personal services income is an income you earn mainly through your individual skills, knowledge, or efforts, rather than through the sale of goods or assets. Personal services income for dentists and doctors commonly includes:- Medical consulting
- Dental services
- Locum work
- Contracting arrangements
- Specialist services
- Sole practitioner work
Does PSI Apply to Doctors and Dentists in Australia?
Yes, PSI rules in Australia apply to the majority of doctors and dentists, particularly if you work as a locum, contractor, or through a private practice structure. Here are some common examples where PSI is likely to apply:| Scenario | PSI Applicability |
|---|---|
| Locum doctor working short-term contracts | Yes |
| A dentist contracted to one clinic | Yes |
| Specialist billing through own company | Often yes |
| Medical practice employing multiple practitioners and staff | Possibly not |
What is the Difference Between PSI and a Personal Services Business (PSB)?
PSI (Personal Services Income) is a classification of income, specifically, the income derived from your personal skills or efforts. And PSB (Personal Services Business) is a tax status that can exempt you from the PSI rules for a given income year. Think of it this way: PSI describes what your income is; PSB status determines whether the restrictions that normally come with that income apply to you.| Scenario | PSI Applicability |
|---|---|
| Locum doctor working short-term contracts | Yes |
| A dentist contracted to one clinic | Yes |
| Specialist billing through own company | Often yes |
| Medical practice employing multiple practitioners and staff | Possibly not |
What Are the PSB Tests and How Do I Know If I Pass?
There are four Personal Services Business tests set out by the ATO. Passing one (plus satisfying the 80% rule where required) allows you to self-assess as a PSB for that income year.The 80% Rule
Before looking at each test, it is important to understand the 80% rule. This rule states that no more than 80% of your PSI in an income year can come from a single client (and their associates). If more than 80% comes from one source, you cannot use most of the PSB tests unless you also apply for a PSB Determination from the ATO This is particularly important for healthcare professionals who work predominantly at one hospital, clinic, or dental practice. Now, let’s understand all four PSB tests.| Personal Services Business tests | Key Requirements | 80% Rule Needed? |
|---|---|---|
| Results Test | 75%+ of PSI paid for specific results, with own tools, rectifying errors at own cost | No. Pass this, and you can self-assess as a PSB |
| Unrelated Clients Test | PSI received from 2+ unrelated clients via genuine offers to the public | Yes. Must also pass the 80% rule |
| Employment Test | 20%+ of principal work done by others, or at least one apprentice for 6+ months | Yes. Must also pass the 80% rule |
| Business Premises Test | Dedicated business premises used solely to earn PSI, separate from home and clients | Yes. Must also pass the 80% rule |
What Happens if the PSI Rules Apply to My Income?
If the PSI rules apply and you do not qualify as a PSB, there are important tax consequences:- Income attribution: Your income is attributed back to you as an individual, even if it has been paid to a company or trust.
- Restricted deductions: You cannot claim many deductions you might otherwise claim through a business entity. Expenses such as rent, mortgage interest, and some home office costs are typically off the table.
- No income splitting: You cannot distribute income to a spouse, family member, or beneficiary at a lower tax rate via a trust or company.
- Personal tax rates apply: The full income is taxed at your marginal rate as an individual.
Can I Still Use a Company or Trust if I Earn PSI?
Yes. A company or trust can still be used for operational, legal, or administrative reasons. But it is important to understand what having a structure does and does not do for you. If the PSI rules do apply:- The income is attributed back to you personally, regardless of the entity
- You cannot use the structure to split income with associates or beneficiaries
- Certain deductions available to the entity are disallowed
- The PSI restrictions do not apply for that income year
- You can legitimately retain income in the structure
- You have more flexibility around distributions and deductions
How Do I Apply for a Personal Services Business Determination (PSBD)?
A Personal Services Business Determination (PSBD) is a formal decision made by the Commissioner of Taxation that grants you PSB status for a specific income year, even if you cannot self-assess as a PSB using the standard tests. You may want to apply for a PSBD if:- You are uncertain whether you will pass any of the four PSB tests
- Unusual circumstances (such as a pandemic, illness, or industry disruption) prevented you from passing a test you would otherwise meet
- You passed the Unrelated Clients Test but failed the 80% rule due to circumstances beyond your control
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featured article — Accounting & Tax for Medical Professionals in Australia: A Complete Guide
Medical professionals in Australia are among the highest earners in the country, which means they are also among those who gain the most from specialist accounting advice and the most to lose from a general accountant. This guide explains what a medical tax accountant in Australia actually does, how your accounting needs shift across each stage of your career, and what tax considerations matter most for doctors and dentists in Australia. Whether you are a junior registrar still figuring out how Personal Services Income (PSI) rules apply to you, or an established specialist thinking about practice structures and Self-Managed Super Fund (SMSF) contributions, this article is designed to give you a clear and practical starting point.
Why Medical Professionals Need a Specialist Accountant
A general accountant can lodge a tax return, but a specialist accountant for medical professionals can do significantly more than that, and the difference is rarely trivial. General accountants typically lack deep knowledge of the ATO rules that apply specifically to doctors. For example, PSI rules are frequently misunderstood or misapplied, and an incorrect self-assessment can trigger audits or penalties. Similarly, salary packaging arrangements available through public hospitals, fringe benefits tax (FBT) implications for private practices, and the interaction between superannuation strategies and a doctor's income trajectory all require sector-specific expertise that a suburban generalist firm is unlikely to have. Beyond technical compliance, a medical accountant understands how your income changes over time, from the modest wages of a hospital intern through to the six-figure earnings of a specialist or private practice owner. Working with a medical tax accountant in Australia who understands these transitions can help avoid costly mistakes while supporting long-term wealth planning. At Smith Coffey, we've spent 50+ years working exclusively with medical and dental professionals across Australia. We understand the ATO rules that apply to your income, the deductions you're entitled to claim, and the structural decisions that need to be made at every stage of your career. The consequences of non-specialist advice accumulate year after year. But working with a specialist accountant for doctors like Smith Coffey can become the highest-return financial decision you'll make.What Does a Medical Tax Accountant Actually Do? (Beyond Tax Returns)
Many doctors think accountants only prepare annual tax returns. In reality, specialist accountants for doctors provide strategic financial guidance throughout the year. An accountant for medical professionals may assist you with:Tax Planning
Tax planning goes beyond calculating taxable income. It involves multiple processes, such as:- Managing super contributions
- Structuring income streams
- Planning for large equipment purchases
- Reviewing trust or company arrangements
- Managing capital gains tax implications
Business Structure Advice
Healthcare professionals often operate under complex structures. Some work as employees, while others operate as sole traders, partnerships, trusts, or companies. Choosing the wrong structure can affect:- Asset protection
- Tax efficiency
- Superannuation
- Compliance obligations
- Future business growth
BAS and GST Compliance
Private practice owners and contractors may need to manage GST registration, Business Activity Statements (BAS), and bookkeeping obligations. Errors in GST reporting are common among medical professionals who are unfamiliar with exempt and taxable services.Superannuation and Retirement Planning
Medical professionals often have irregular income patterns, especially early in their careers. Strategic superannuation planning can help maximise long-term wealth while reducing taxable income. Specialist accountants may also work alongside financial advisers to help with:- Self-managed super funds (SMSFs)
- Retirement strategies
- Insurance planning
- Investment structures
Accounting Needs at Each Stage of a Medical Career
Your financial situation and the advice you need will change considerably across a medical career. Here is a practical overview of what to focus on at each stage.- Medical student: Income is minimal, but HECS-HELP debt is accumulating. The primary concern at this stage is understanding how repayment thresholds work and ensuring any part-time income is declared correctly. Early contact with a specialist accountant for medical professionals, even briefly, can help students understand what lies ahead.
- Junior doctor and registrar: Income rises, HECS repayments kick in, and PSI rules start to matter. This is a critical stage to get right. Salary packaging through a hospital, correctly claiming tax deductions for registration fees, CPD, and work-related travel, and establishing basic superannuation habits are the priorities here.
- Established specialist: Earnings are significantly higher, which means the tax exposure is also greater. At this stage, structuring income correctly, maximising concessional super contributions, and considering an SMSF can deliver meaningful long-term benefits. Income protection insurance and estate planning also become relevant.
- Private practice owner: Running a private practice introduces a new layer of complexity: practice structure, FBT, payroll tax, management service fee agreements, GST exemptions, and business succession planning. A medical accountant with practice experience is essential at this stage. Refer to the private practice accounting page to understand more about it in detail.
- Approaching retirement: Transitioning from full-time practice to retirement involves decisions around super pension phase, practice sale or succession, and asset protection. Early planning here ensures that decades of wealth-building are not eroded in the final years.
Key Tax Deductions for Doctors in Australia
One of the most common areas where doctors miss out financially is in failing to claim all legitimate deductions. The ATO allows medical professionals to claim a range of work-related expenses, provided they are directly connected to earning income and supported by records. Common tax deductions for healthcare professionals include:- CPD and education costs: Course fees, conference registrations, and study materials directly related to your medical practice are generally deductible.
- Professional registration and memberships: AHPRA registration fees, specialist college memberships, and union or professional association fees are claimable.
- Work-related travel: Travel between workplaces (not home to work) and travel for CPD are generally deductible. Keep a log of kilometres and destinations.
- Uniforms and protective clothing: Scrubs, surgical gowns, and other clothing specific to your role and not suitable for everyday wear can be claimed, along with laundry costs.
- Medical equipment and tools: Stethoscopes, ophthalmoscopes, surgical instruments, and similar items purchased for work are deductible, either immediately or via depreciation, depending on cost.
- Home office expenses: If you complete administrative work, research, or telehealth consultations from home, you may be able to claim a portion of relevant costs using the ATO's fixed rate or actual cost method.
Key Tax Considerations for Medical Professionals
Beyond deductions, there are several larger tax considerations that significantly affect doctors and dentists in Australia.- Personal Services Income (PSI) rules: If more than 50% of your income comes from your personal services income, PSI rules may apply and limit your ability to split income with a spouse or distribute it through a trust. Correctly assessing whether PSI rules apply requires specialist knowledge, and errors can trigger ATO scrutiny.
- Practice structure: Sole trader, trust, or company: Choosing the wrong structure is one of the most expensive mistakes a medical professional can make, and it can be difficult to unwind later. Each structure carries different tax rates, asset protection levels, and compliance obligations. A specialist accountant for doctors will model these scenarios based on your income, family situation, and long-term goals rather than applying a default approach.
- Superannuation and SMSF options: Concessional contributions are taxed at 15% inside super, compared to marginal rates as high as 47% outside. For high-income doctors, maximising super contributions within annual caps is one of the most effective tax reduction strategies available. Division 293 tax applies to those earning above $250,000, adding a further 15% on contributions, which makes it essential to get expert financial planning for doctors before making contribution decisions.
- Salary packaging: Salary packaging can significantly reduce taxable income for doctors working in public hospitals or not-for-profit settings. The rules around what can be packaged and how it interacts with fringe benefits tax are complex. Doctors running a private practice need to understand the FBT implications of offering packaging arrangements to staff before putting them in place.
- Fringe Benefits Tax (FBT): FBT affects both employees benefiting from salary packaging and practice owners providing benefits to staff. The rates are high, and the rules are specific, so getting sound tax advice for doctors before offering or accepting benefits in kind is worthwhile.
How to Choose the Right Medical Accountant
Not all accountants who say they work with doctors are genuine specialists. Here is a practical checklist when evaluating your options.- Sector specialisation: Look for a firm that works predominantly or exclusively with medical and dental professionals.
- CPA or CA qualifications: Your accountant should hold a Certified Practicing Accountant (CPA) or a Chartered Accountant (CA) designation as a minimum.
- RG146 compliance and financial planning capability: The best specialist accountants for doctors in Perth are also qualified to advise on financial planning, not just tax. This allows for a more integrated approach to wealth-building.
- Track record with medical clients: Ask how long the firm has worked in the medical sector and whether they have experience with clients at your specific career stage.
- Proactive communication: A good medical accountant does not wait for you to ask questions. They reach out when legislation changes, when new strategies become available, or when your circumstances suggest a review is needed.
The Bottom Line
Accounting and taxation for medical professionals involve far more than annual tax returns. From PSI rules and salary packaging to practice structures and retirement planning, healthcare professionals face unique financial challenges that require specialist expertise. Whether you are an intern beginning your career, an established specialist, or a private practice owner, working with a medical tax accountant can help improve financial clarity, support compliance, and create better long-term outcomes. If you would like tailored advice for your medical career or practice, get in touch with the team at Smith Coffey to discuss your accounting, tax, and financial planning needs. by the FSD Teamread now
featured article — Guide to Tax Deductions for Doctors in Australia - Smith Coffey
Doctors Tax Deductions You Can Claim in Your Next Tax Return
One way for doctors, dentists and other medical professionals to demystify the process of lodging their tax returns is to gain a better understanding of the deductions you can claim, as well as the ones you can’t. This article will provide a summary of things to claim at tax time, as well as considerations to bear in mind when submitting your next tax deductions including considerations for personal expenses, work related expenses and other deductible expenses you might not have considered.Introduction to Tax Deductions
As a medical professional, understanding tax deductions is essential for maximising your refund and keeping your personal finances in good shape. Medical professionals including doctors, nurses, and other healthcare workers are eligible to claim a variety of deductions, such as travel expenses for work-related trips, self education costs, home office expenses, and protective clothing required for your job. Knowing which expenses are deductible and how to claim them can make a significant difference at tax time. Strong record-keeping is really important at tax time for medical professionals. It is essential to maintain detailed records and keep all receipts related to claimed expenses, including digital copies and email receipts. It is not compulsory to keep physical receipts, as long as you have a legible digital copy.Tax Deductible Expenses for Medical Professionals
Self-Education
Due to Continuing Professional Development (CPD) requirements, medical professionals are often required to spend a large amount of their own money on self-education expenses every year. If this self-education relates directly to your work and how you produce your income, you can claim the cost as a deduction.
Examples of these deductible expenses include relevant:- Course and exam fees
- Textbooks and subscriptions to professional library resources
- Seminar and conference fees
- Study expenses directly related to your current position or employment activities
Insurance
Any professional indemnity insurance expenses incurred in relation to your work activities are tax deductible.
You may also be wondering ‘Can I claim income protection on my tax return?’. The answer is maybe – other insurance expenses related to your work, such as income protection insurance, may be tax deductible but it’s always best to talk to a qualified medical tax accountant.Uniforms and Protective Clothing
Expenses related to the purchase, hiring, cleaning or repair of uniforms, protective clothing, or specific garments that medical professionals are required to wear for your job can be claimed as a deduction. Examples include specialised theatre footwear, medical scrubs and lab coats. You cannot claim a tax deduction for normal business clothing, such as collared shirts or blouses, even if they are outlined in your organisation’s dress code.Travel
Generally, you cannot deduct expenses for travel to and from work as this is considered a private expense.
However, medical professionals may claim deductions for business-related travel expenses, not limited to car expenses but also:- Travelling between different workplaces (e.g. between two hospitals or medical practices)
- Travelling from home to a workplace other than your regular place of work (e.g. for irregular locum work at another clinic)
- Travelling from home to your normal workplace in a situation where you are being paid to be on call and need to attend to an emergency.
Equipment, Tools and Data
If you have purchased tools or equipment that you use for work-related purposes, you can claim tax deductions. For doctors and other medical professionals, this may include the purchase of medical equipment, protective gear, office stationary and electronic devices. For example, you can claim a mobile phone purchase tax deduction if you use the device in the course of your work. Purchases of under $300 can be claimed immediately, but more expensive items will need to be depreciated over the course of their useful life.
Doctors, dentists and medical professionals could also claim deductions for the purchase, maintenance, and repair of medical equipment and tools used exclusively for work. If you have expenses that relate to maintaining a home office, such as phone and internet expenses, you also have the option to claim a fixed 67 cents per hour for each hour that you’ve worked from home. If you choose to claim on this basis, you cannot claim for the specific home office expenses as well.Carrying on a Business
Doctors carrying on a business, such as a private medical practice, can claim the full cost of any equipment purchased for that business in the year that it was purchased. If you’ve taken out any loans for business-related purposes, the interest expense incurred on the loan can also be claimed as a tax deduction.Other Deductions
There are a number of other tax deductions you can claim in your next tax return. Expenses related to the management of your tax affairs can be claimed as a deduction, as well as eligible donations of over $2. You can also claim annual subscriptions, union fees and memberships in professional bodies.
Another consideration is the use of tax deductible debt to drive wealth creation. This can be a great way to reduce your tax liability while also growing your investment portfolio.Get Ahead this Financial Year with Smith Coffey
This financial year, consider partnering with a qualified tax accountant who understands the medical field and can help you identify all relevant deductions. Book a consultation with Smith Coffey today and start getting more out of your tax return. by the FSD Teamread now
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Personal Services Income for Doctors & Dentists: Your Questions Answered
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