Basic registration considerations for medical employees moving to consultant (locum) arrangements

The decision to move from medical employee to consultant can often be confusing and can produce more tax and related obligations than you may be aware of.

If you are an employee in a practice or hospital, you’ll be paid a salary or wages and the tax system is fairly uncomplicated.

Employment income usually has the following characteristics:

• It is subject to PAYG Withholding, based on marginal tax rates. You receive your net pay and your PAYG Withholding tax is paid to the Australian Taxation Office (ATO) on your behalf
• You are assisted with retirement planning as you receive Superannuation Guarantee. This is normally calculated at 9.5% of your gross, ordinary time salary or wages
• You are entitled to annual leave and sick leave
• You are under instruction as to what your job entails and who you should report to
• You may receive an allowance for laundry or uniforms.

This income is then included in your yearly income tax return, and your total tax liability is reduced by the amount of tax already withheld.

The complications of an advancing career

As your career progresses and you have the opportunity to move from employee to consultant (locum) status, your taxation affairs can become more complicated.

Should you make the choice to move into a consulting role, some issues that you may need to consider include:

• Tax will no longer be paid on your behalf
• You may be required to pay a service fee to your employer
• Superannuation now becomes a planning tool, and represents an allowable deduction
• Registration for an Australia Business Number (ABN) and goods and services tax (GST)
• A business structure may be required as a part of your negotiated contract
• Cash-flow considerations for GST and/or tax payments
• Insurance coverage.

This list is not exhaustive, and depending on your individual circumstances there are other things you may need to consider.

A holistic solution

At LDB, our objective is to provide you with peace of mind by developing a holistic solution that assists you with all of your financial needs.

This includes assisting you with:

• New business entity structures: This is usually a company or a trust. The business structure you adopt should be the one that suits your personal circumstances and what works best for you
• ABN registration: All Australian businesses, regardless of structure, are required to register for an ABN. This includes sole traders
• GST registration: Where GST turnover (gross income less GST) exceeds $75,000, you are required to register for GST. While most income received from medical services may be GST-free, there are expenses that you will be required to pay (including service fees) that may attract GST. This can be claimed back from the ATO
• BAS reporting: If you are registered for GST, you may be required to report any GST liability (i.e. GST collected less GST paid) to the ATO on a quarterly basis via business activity statements (BAS)
• Superannuation: You will become responsible for managing your own superannuation contributions. Decisions regarding concessional contributions may need to be made throughout the year
• PAYG withholding: If you do create a new business structure and wish to employ staff, you may need register for PAYG withholding
• PAYG instalments: PAYG instalments is a system of making regular repayments towards your annual tax obligations. This is usually determined by the ATO after the lodgement of your first income tax return as a consultant. Voluntary registration is also available.

Need financial advice?

If all these registrations seem daunting to you, don’t worry.

By working as one with you, LDB can streamline your accounting needs and provide you with the peace of mind to allow you to focus on growing your new business.

For more information call us on (03) 9875 2900 or complete the contact form below.