To stem the flow, there are a number of financial strategies available that professionals could consider implementing to reduce their tax liability each year.

These include salary sacrificing through superannuation contributions, selecting the right investment structure to accumulate wealth over the long term, purchasing a car through a novated lease, and claiming deductible debt.

Salary sacrificing through superannuation contributions

You may be able to direct a portion of your earnings to superannuation as salary sacrifice contributions.

Benefits:

• Directing additional funds to superannuation would provide a tax advantage as the money would be taxed at the concessional rate of 15 per cent as opposed to your marginal tax rate. The highest marginal tax rate in Australia is 45 per cent for annual taxable income over $180,000. In addition, the Federal Government has in place a two per cent budget repair levy on taxable income in excess of $180 000, which is legislated until 30 June 2017.
• Increasing salary sacrifice contributions helps build your superannuation balance for retirement.
• Depending on your age you can direct up to $30,000 to $35,000 each year to superannuation from your pre-tax income.

Considerations:

• You are unable to access your superannuation until retirement. While contributing money to superannuation can assist in minimising tax, you would need to weigh this up against not having access to capital for an extended period of time.

Consider a tax-effective investment structure such as a Self-Managed Super Fund (SMSF), a discretionary or company trust

Selecting the right investment structure for wealth accumulation can provide substantial tax benefits over the long term., particularly in the case where the medical professional is a private practitioner. The most common investment structures established by medical professionals as are a self-managed super fund (SMSF), a discretionary trust or company.

In addition, you could consider purchasing a property (e.g medical suite) within an SMSF as this can provide long term tax benefits. With recent changes to legislation, you can even borrow within superannuation to purchase a property.

a) Superannuation

You are able to accumulate assets within superannuation for the longer term. This could come in the form of a self-managed superannuation fund (SMSF) or a public offer superannuation fund.

Benefits:

• Superannuation funds pay tax at a concessional rate of 15 per cent as opposed to your marginal tax rate which could be as high as 47 per cent. The superannuation tax rate can be reduced further by holding assets for the longer term.

Considerations:

• Aside from not being able to access capital until retirement in most instances, there are restrictions to holding assets within superannuation that do not apply to other investment structures. For example, you are unable to gain personal use from an asset held in a SMSF (e.g. a holiday home).

b) Discretionary (Family) Trust

A family trust is a discretionary trust set up to hold a family’s assets or run a business. Family members are beneficiaries of the trust.

Benefits:

• A family trust enables the streaming of income and capital gains to other family members including between spouses, children, and parents. It can be particularly tax-effective when one family member pays a lower rate of tax than another.

Considerations:

• If family members are in receipt of government benefits, additional care needs to be taken to ensure distributions from the family trust do not affect their entitlements.

c) Company Trust

You could choose to establish a company and accumulate assets within a company structure (Pty Ltd).

Benefits:

• Companies pay tax at a flat rate of 30 per cent. As a result, if your marginal tax rate is greater than 30 per cent, you could save tax by accumulating assets within a company trust structure.

Considerations:

• Companies are not entitled to the 50 per cent capital gains tax (CGT) discount. As a result, both income and capital gains are taxed at a flat rate of 30 per cent annually.

Purchase a car via a novated lease

A novated lease is a three-way agreement between you, your employer and a finance company and can be used to purchase a new car. If you are on a high tax bracket, this option can provide substantial tax benefits.

Benefits:

• Purchasing a car via a novated lease can provide tax savings as you are able to pay the lease costs and running costs of the car (petrol, insurance) from your pre-tax salary
• You can also save on the GST when purchasing

Considerations:

• Depending on the value of the car and other particulars, you may be subject to Fringe Benefits Tax (FBT) on a novated lease. In short, FBT is levied in-lieu of receiving wages and can reduce the effectiveness of a novated lease as it is an additional tax.
• Before undertaking a novated lease you would need to be sure that it provided an advantage after the impact of FBT.

Claim tax deductions via deductible debt

Deductible debt is debt for which you are able to claim a tax deduction for interests or other costs incurred on the asset. Maintaining deductible debt can provide tax advantages.

Benefits:

• Interest costs on the debt are tax-deductible. This reduces the taxable income meaning you pay less tax.

Considerations:

• If having deductible debt fits with your financial goals and objectives and you are using the debt to purchase quality assets for the longer term, then it could be appropriate and provide tax savings. However, aggressive taxation schemes are to be avoided.

As outlined above, there are a number of strategies that medical professionals can implement to ensure their earnings and investments are tax effective. However, tax minimisation should never be a primary consideration for investment decisions. Instead, it is important for medical professionals to review whether the strategy would fit with their overall goals and objectives. A qualified financial adviser can help you implement a robust financial plan to suit individual needs.