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February 2nd, 2012
In preparation for the end of the financial year 30th June 2011 there are some things you can do for your medical practice that will help with the compliance work required. By implementing an effective tax strategy, you can minimise you income tax obligations.
The following is a list of items relevant to your medical practice, some of which need to be done before the end of the financial year to take effect and some that can wait until after. Either way, to maximise your taxation strategy, the process must start now.
Before 30 June 2010
2010 Financial Year Performance Review
It is important that you take some time to review the performance of your medical practice for the 2010 financial year, specifically the income tax obligation on you business. As a doctor, if you have made a profit for the year then you will have a tax obligation to the ATO over the coming months in some way or another.
Understanding what this obligation is now allows you to minimise where possible and plan for the payment in the new financial year. There is opportunity to use the funds put aside for your tax bill in a productive way before payment is due to be made to the ATO.
Knowing early what your tax obligation is gives you options for additional wealth creation.
Bad Debts – Debtor Review
A review of your debtor lists should take place before the end of the year. If you discover any old debtors that you know will not be paid, it is better for tax purposes to write these debts off sooner rather than later.
To claim a tax deduction the bad debt must be written off before the 30 June and the practice must have signed “minutes of meeting” that discuss the reasoning behind the write off and declare that the debtor is not recoverable.
If you discover some debtors who will not be able to pay please let us know and we will prepare the necessary paperwork.
A tax deduction is only allowed for the employee’s superannuation if it has actually been paid to the super funds.
Depending if your cash balances allow it, paying the outstanding 2010 super expense in June will give you the tax deduction in 2011 as appose to 2012.
Directors/Principals Superannuation Salary Sacrifice
As a business owner there is an opportunity to salary sacrifice superannuation that will give your business a greater tax deduction and bolster your personal superannuation fund.
Under current legislation, an individual can pay into their super any contribution up to the maximum threshold of $25,000 or $50,000 for individuals over 50 years of age. Any amount paid above this threshold will incur penalty taxes. This cap includes the compulsory 9% super paid on wages.
An example to help explain how this works is as follows:
Individual wages for 2011: $100,000
Compulsory 9% Super: $ 9,000
The amount that can be salary sacrifice is $16,000 ($25,000 – $9,000).
The process would be to determine how much super an individual has paid through the compulsory 9% and determine how much extra your business is willing to pay for that individual in consideration of current cash balances and future obligations.
There is a tax deduction for your medical practice for all super payments made, the trade off is you cannot touch that money until you reach retirement age.
As a medical professional, there are many expenses incurred in the running of your practice. Expenses such as medical registrations, subscriptions and memberships, as well as equipment and insurance. If these payments are made before the 30th June 2011, they will be considered legitimate tax deductions for the current year.
If you would like advice on any tax related matters, please contact MEDIQ Medical Financial Services.