Medical and Health Professionals Tax Guide

Practice Structures: Sole Trader, Company, and Service Trust

The choice of practice structure determines liability exposure, tax outcomes, and the reach of the PSI rules. A sole practitioner operates as an ABN sole trader, reporting all practice income and deductions in their individual return. This is the simplest structure but carries full personal liability and no ability to retain profits at company tax rates. A partnership of individuals pools income in a group practice, with net profit allocated to partners at their marginal rates. PSI rules can still apply at the individual partner level. Some health practitioner types face state-level restrictions on trading through a standard company, but incorporated medical practice entities can hold the practice business and employ or contract practitioners. Where PSI rules apply to a company structure, profits attributable to the individual's personal services are taxed as that individual's income regardless of the company tax rate.

PSI Rules and Medical Locums

Income is PSI where more than 50% of what is received is a reward for the practitioner's personal efforts or skills. Locum and sessional work, paid per session or consultation without significant business assets, almost always meets this definition. If the PSI rules apply, deductions are limited and net PSI is taxed to the individual even if earned via a company, trust, or partnership. The results test is the primary and most favourable way to escape the PSI rules: the practitioner must be paid to achieve a specific result (not hourly or sessional), provide necessary equipment or tools, and be liable to fix defects at their own cost. Most medical locum arrangements fail this test. If the results test fails, the 80% rule determines whether further tests are available. Receiving 80% or more of PSI from a single client (or a connected group such as one hospital network) means the practitioner must either pass the results test or obtain a formal PSB determination from the ATO.

GST Treatment of Medical and Health Services

A medical service is GST-free under Subdivision 38-B of the GST Act 1999 if a Medicare benefit is payable for that specific service, or the service is generally accepted in the relevant medical profession as necessary for the appropriate treatment of the patient. Bulk-billing income is assessable but GST-free. Private fees and patient-paid gap amounts for Medicare-eligible services are also GST-free. Allied health services follow a more complex path: many are GST-free when provided by a listed professional and meet the necessary-treatment test, but some become GST-free only when provided on referral from a GP or specialist and billed as part of a Medicare-eligible care plan. Non-therapeutic cosmetic procedures (purely aesthetic surgery, appearance-only injectables) are taxable at 10% GST. Medico-legal assessments and employer-requested examinations are usually taxable unless they meet both the appropriate-treatment test and statutory definitions. The key ruling is GSTR 2006/9.

AHPRA Registration, Indemnity, and Professional Fees

AHPRA registration fees, specialist college membership fees, and all required professional registrations are fully deductible under s 8-1 ITAA 1997. The ATO's 'Doctor, specialist or other medical professionals' deduction guide explicitly lists these. Medical defence organisation (MDO) premiums and practice indemnity insurance policies are deductible where they relate to professional services income. If cover extends to private income only (where the state provides indemnity for public hospital work), only the income-related portion is deductible, though in practice most MDO premiums relate entirely to professional income. Professional journal subscriptions, medical textbook purchases, and professional association memberships directly connected with current practice are also deductible in the year incurred.

CPD and Training Expense Deductions

Course fees, conference registrations, workshops, and training directly related to maintaining or improving skills used to earn current medical income are deductible under s 8-1 ITAA 1997. Travel, accommodation, and meals for CPD attendance away from the practitioner's usual location are deductible where the primary purpose of the trip is the CPD event. Study qualifying for a new field or a significantly different role (for example, a physiotherapist retraining as a medical doctor) is not deductible because it is capital in nature. Where a CPD trip incorporates a private holiday, costs must be reasonably apportioned between the deductible professional component and the non-deductible personal component. Compulsory CPD hours required to maintain professional registration are the clearest case for deductibility, but non-compulsory development that is sufficiently connected with current income-earning activity also qualifies.

Medical Equipment and Depreciation

Medical equipment is depreciated under Division 40 of ITAA 1997 over the effective life determined by the ATO's annual Effective Life Determination. Operators choose between the prime cost (straight-line) and diminishing value methods. Common depreciable assets include diagnostic imaging equipment, medical lasers, dental chairs, surgery fit-out components, and high-value surgical instruments. Low-cost items under the instant asset write-off threshold ($20,000, made permanent from 2026-27) are immediately deducted in the year of purchase. Consumables (disposable instruments, dressings, syringes, gloves) are deductible as supplies in the year incurred and are not depreciated. For practices investing in significant equipment, the choice between prime cost and diminishing value affects the timing of deductions: diminishing value front-loads the deduction, which benefits practices with higher income in earlier years of ownership.

Rural and Remote Practitioners: Zone Tax Offset

The zone tax offset under Division 13 of ITAA 1997 is available to medical practitioners who are residents of specified remote or isolated areas (Zone A, Zone B, and special areas) for 183 days or more during the income year. The test is based on the practitioner's usual place of residence, not where they work. FIFO practitioners who live outside a zone but work in one are generally not eligible following 1 July 2015 reforms. Zone A provides a base offset of $338, Zone B provides $57, and special areas provide $1,173, with additional amounts available for dependants. Rural outreach doctors can deduct travel and accommodation costs incurred in earning income, including travel between practice locations, subject to normal substantiation rules. For practitioners relocating to rural areas, the offset is modest compared to the income premium, but it is a permanent annual benefit that compounds over a career in regional practice.

Statute references

• ITAA 1997 Divisions 84-87 (personal services income regime)
• ITAA 1997 ss 6-5, 8-1 (assessable income and general deduction provision)
• ITAA 1997 Division 40 (depreciation of medical equipment)
• ITAA 1997 Division 13 (zone tax offset for remote area residents)
• A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-B (GST-free medical services)
• GSTR 2006/9 (supply of medical services, meaning and GST treatment)
• ATO PCG 2025/5 (medical professionals, entities and income splitting)
• ATO Effective Life Determination (medical equipment effective lives)

Frequently asked questions