Released on 12 May, the Australian Government's 2015-2016 budget contains a number of changes for small business owners.
Read on to find out what those changes do - and don't - mean for medical business operators.
They aren't really changes until...
Although this year's budget provisions are a lot more palatable than last year, budget announcements don't come into force until budget bills pass through both houses of parliament. Last year, many of the government's announcements didn't make it through the Senate.
Governments will often bundle 'good' legislation with 'bad' in bills put to parliament. This is one strategy to push unpopular changes through a hostile parliament and senate.
This year, although the opposition has indicated that it will support the tax-related changes announced in the budget, it has also stated that it will not necessarily support all of the announced budget provisions. This increases uncertainty for small business operators about which of the announced changes will and won't become reality.
I expect we'll know in the next month or so which aspects of the budget will be passed. Bear in mind that, if passed, some provisions will have retrospective effect from budget night.
Definition of small business
A small business is defined as one that has a turnover of less than $2 million per year.
Bear in mind that turnover is calculated using what are called 'aggregate' rules for example, if you are part owner of a practice, your personal turnover as well as the turnover of the whole practice (not just your share) may be included to determine if you exceed the threshold.
A key small business provision announced in the budget was the introduction of an 'instant' tax deduction for assets costing up to $20,000 for small businesses.
Be aware that this deduction applies only to tangible business assets, not to building works or fit-outs, or to a private use family car. It also applies only to assets valued up to $20,000 excluding GST, and does not apply to assets greater in value.
Reduced company tax rate
The treasurer also announced the government's intention to reduce the company tax rate to 28.5% for all companies with a turnover less than $2 million from 1 July this year. However, the 28.5% company tax rate will not affect personal services income providers (like medical professionals), as their business profit MUST be distributed and declared in the individual tax return of the individual who generated the income.
It may affect service entities that are Pty Ltd companies, but it won't affect trust entities.
$1,000 tax rebate
The budget also introduced a $1,000 tax rebate for business profits. My view is this is a very small adjustment and a drop in the ocean with respect to the tax that medical professionals pay.
Capital gains tax change
The fourth significant small business initiative is to allow businesses with an annual turnover of less than $2 million to change their legal structure without attracting a capital gains tax liability at that point, However, a significant part of business restructure costs is stamp duty, which remains unchanged. Hence this tax concession is less appealing than it may at first appear.
So what's really in it for medical businesses?
My view? The $20,000 tax write-off is the only proposal that will have any material effect on the tax position of doctors and dentists.
Once we know for certain that it has passed into law, you can rest assured that Medical Financial Group advisers will be considering it as part of financial planning for suitable clients.2015 federal budget small business changes - will they help medical business operators?
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By Neal Durling and Sean O'Kane.
Most people - including many medical professionals - believe that a medical career necessarily delivers very comfortable financial outcomes.
But the truth is more complicated than that, with doctors and other medicos facing four unique challenges that must be overcome if they are to reach true financial independence.
I explore these challenges in depth with my colleague Sean O'Kane in a new Medical Financial Group white paper: "Are you planning your journey to financial independence? A white paper for medical practitioners".
Our white paper shatters a number of myths about medicos and money, and gives you intelligent financial insights based on evidence. Sean and I dug deep into statistical data, read relevant articles from medical journals, and held a series of frank interviews with specialists themselves to put the paper together. I believe we now have a resource that is essential reading for any medical practitioner who wants to achieve long-term financial security.
Some of the fascinating findings we made in researching and writing the 12-page paper:
And the four unique financial challenges for medical professionals that we uncovered? I'm happy to share them with you here:
1. Financial complacency/over-eagerness
Practitioners tend to fall into two camps either complacent that they are now earning good money so don't need to plan financially, or eager to finally enjoy the rewards of all their hard work so they want to spend now! Neither approach will set you up for long-term financial success.
2. Less time than other professionals
Medicos especially specialists are busy people, with little time to spare. And, because of your training and the nature of your work, a practitioner's earning life may actually be shorter than that of many other professionals. Both make it harder to research and implement a financial strategy.
3. Lack of financial understanding
By definition, medical practitioners are intelligent people. But finance is a whole new world. Some of our interview subjects told us of medicos who invested less than wisely, and lived to regret it.
4. Lack of trust
High-earning professional people often worry that they could be a target for financial experts. It's vital to find a credible, transparent financial adviser whom you feel you can trust.
Our full white paper gives more information about each of these challenges and how you can overcome them. The paper also contains words of wisdom from your colleagues about their own financial journeys, plus advice characteristics that most doctors value.
Download your free copy of the white paper now - I promise that it's intelligent, relevant, and shouldn't take you longer than 15 minutes to read.
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If you're a doctor looking to set up in private practice, you'll need to address a range of financial factors.
At Medical Financial Group, we work closely with our clients so that they can achieve the best business and tax outcomes.Whether you're setting up a new medical or dental practice, buying into or joining an existing practice, we suggest you think about the following:
At Medical Financial Group, we take a proactive approach to our clients' tax and accounting needs. Please feel free to contact us with any questions you may have via phone: (07) 3363 5800 or email: firstname.lastname@example.org
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Borrowing money to buy property through your self-managed super fund (SMSF) is becoming increasingly popular in Australia. Lots of medical specialists seem to be doing it, but is it right for you?
This kind of investment has risks as well as potential benefits. Before you decide to buy property through your SMSF, you need to think carefully and feel confident that this step fits into your overall financial advice plan.
To help guide your thinking, we've put together the following up-to-date summary of potential benefits and pitfalls of SMSF property investment.
For more detailed information, and a chance to speak to one of our financial planning partners in person, click here to register for one of our free upcoming evening seminars in:
- Cairns, 21 May, Shangri-La Hotel
- Townsville, 4 June, Rydges Southbank
- Brisbane, 18 June, Fireworks Gallery, Newstead
Reasons to consider using your SMSF for property investment
- Up until retirement, investment income associated with the property (i.e. capital gains, rent) is taxed at a top rate of only 15%.
- If you still own the property after you retire, you will pay no tax on either capital gains (if you sell) or rent (if you keep it).
- You can invest in paying off the mortgage on your own commercial property rather than paying rent to someone else.
- Historically, property has provided good investment returns.
- Properly managed, debt can be used to create wealth.
Possible pitfalls of using your SMSF for property investment
- It's not about negative gearing (as it is if you buy a property in your own name). The loan with a SMSF has to be paid off. In our experience this means you need a minimum of 30% deposit for commercial property and 40% to 50% for residential
- The quality of your property investment is always important. Location plays a big role, and an inferior property will still be that whether it's purchased using super or not.
- Australia's Reserve Bank and economists have recently expressed concerns that the property market is overheated.
- Buying a property through an SMSF is complicated and can be expensive to set up and manage.
- Property is 'illiquid' (can't be easily converted to cash), so you need to invest for the long term.
- For smaller fund balances, buying property can lead to an undiversified portfolio, increasing your investment risk.
If you're considering purchasing a property through your SMSF, seek professional advice to make sure this move is part of a broader plan to enhance your financial future.
For further information, contact Medical Financial Group
Tel: (07) 3363 5800
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