The McMasters’ legal team recently attended an ATO forum discussing professional practice structures.
The forum confirmed that the ATO follows its public statements and rulings on running professional practices, particularly IT 2503 and IT 2639. IT 2503 can be viewed here: IT 2503 Incorporation of Medical Practices and IT 2639 can be viewed here: Income tax Ruling IT 2639.
This is, of course, no surprise.
Interestingly, the forum emphasised the idea of a reasonable distribution, commensurate with the doctor’s contribution, in practices deriving business income. This was so even though there is no such statutory requirement, and the concept of a reasonable distribution is not mentioned in IT 2503 or IT 2639.
We are now recommending that doctors who derive business income through practice trusts make sure their assessable income includes a reasonable distribution, ie an arms length amount similar to what the doctor would be paid for their time by an unrelated third party.
This is a deliberately conservative view.
ATO private rulings on practice structures
The forum also noted that private rulings are not binding on the ATO but are quite instructive for doctors interested in understanding the ATO’s view on practice structures.
For example, in private ruling 77061 the ATO considered whether a unit trust owned by family trusts could own and operate a medical practice. The ATO considered facts and the law and, in summary, concluded that the unit trust could own and operate the practice.
Private ruling 77061 can be viewed here: ATO Private Ruling 77061.