Lead Financial Solutions

𝐒𝐞𝐫𝐯𝐢𝐜𝐞 𝐄𝐧𝐭𝐢𝐭𝐲 𝐀𝐫𝐫𝐚𝐧𝐠𝐞𝐦𝐞𝐧𝐭

The Service Entity Arrangement has been in place for many years, dating back to ATO Income Tax Ruling IT 276, issued in 1978 following the Federal Court decision in the Phillips case.
The primary intention of a service entity is asset protection - separating operating risk from asset ownership within a business structure.
When deciding which structure (company or trust) to incorporate as a service entity for medical professionals, there are several key factors to consider. Below are three common scenarios:

𝐒𝐜𝐞𝐧𝐚𝐫𝐢𝐨 𝟏 - 𝐒𝐨𝐥𝐞 𝐏𝐫𝐚𝐜𝐭𝐢𝐭𝐢𝐨𝐧𝐞𝐫 𝐰𝐢𝐭𝐡 𝐚 𝐃𝐢𝐬𝐜𝐫𝐞𝐭𝐢𝐨𝐧𝐚𝐫𝐲 𝐓𝐫𝐮𝐬𝐭
This is the most common arrangement.
The service entity operates through a discretionary trust, allowing net profits to be distributed flexibly to beneficiaries such as:
• Spouse/partner
• Adult children
• Minor children (capped at $416 tax-free threshold)
• Parents (including non-residents, subject to non-resident tax rates)
If there are excess profits not required for personal distribution, the trust may distribute to an investment company (commonly referred to as a “bucket company”) to cap tax at the corporate rate and retain funds for reinvestment. This structure provides flexibility in income streaming and strong asset protection.

𝐒𝐜𝐞𝐧𝐚𝐫𝐢𝐨 𝟐 - 𝐒𝐨𝐥𝐞 𝐏𝐫𝐚𝐜𝐭𝐢𝐭𝐢𝐨𝐧𝐞𝐫 𝐰𝐢𝐭𝐡 𝐚𝐧 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐂𝐨𝐦𝐩𝐚𝐧𝐲
Under this arrangement, killing two birds with one stone, a company acts as both:
• The service entity; and
• The investment vehicle (e.g. investing in shares and ETFs), creating a potential “snowball effect” for long-term wealth accumulation.
If access to retained profits is required, the company can declare dividends. For flexibility in distributing those dividends, the shareholder of the company should ideally be a discretionary trust.
This structure is generally simpler but provides less distribution flexibility compared to a trust unless properly structured.

𝐒𝐜𝐞𝐧𝐚𝐫𝐢𝐨 𝟑 - 𝐌𝐮𝐥𝐭𝐢𝐩𝐥𝐞 𝐏𝐫𝐚𝐜𝐭𝐢𝐭𝐢𝐨𝐧𝐞𝐫𝐬 𝐰𝐢𝐭𝐡 𝐚 𝐇𝐲𝐛𝐫𝐢𝐝 𝐓𝐫𝐮𝐬𝐭
A Hybrid Trust combines features of both a discretionary trust and a unit trust.
The advantage of a hybrid structure is:
• Fixed entitlement for passive income (via units); and
• Discretionary allocation of each practitioner’s service fee contributions, allowing profits to be distributed fairly and proportionately.
This structure can work well where multiple practitioners are contributing at different levels but still require fairness and flexibility.

Each structure has its own tax, asset protection, and commercial considerations. The appropriate choice depends on income levels, family circumstances, long-term investment plans, and whether there are single or multiple practitioners involved.

𝐃𝐢𝐫𝐞𝐜𝐭𝐨𝐫 𝐏𝐞𝐧𝐚𝐥𝐭𝐲 𝐍𝐨𝐭𝐢𝐜𝐞𝐬

The ATO has become significantly stricter and is now issuing late-lodgement penalties without hesitation, unlike in previous years when they often issued a warning letter first.

For the first time this year, we have seen the ATO issue Director Penalty Notices to clients operating through a company or trust, in addition to the standard late-lodgement penalties and general interest charges.

These Director penalties arise from failures to meet directors’ obligations for GST and PAYG withholding, and the amounts can be substantial - per category, per quarterly BAS, and are not tax-deductible!!!



Photo by Slava Denisov

𝐒𝐮𝐩𝐞𝐫𝐚𝐧𝐧𝐮𝐚𝐭𝐢𝐨𝐧 𝐆𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞

Effective 1 July 2025, the employer Superannuation Guarantee (SG) rate has increased from 11.5% to 12%.



Photo by Abrrakhlaed2626