We met Dr Lucy in 2004 when she was a 27 year-old GP registrar. She was about to complete her GP training and looking forward to practicing on her own without supervision and, finally, becoming a fully-fledged GP. She is originally from Malaysia, and was very aspirational, particularly on the property side of things. So were her parents: they gave up a lot for Lucy to train in Australia and were looking for a return on their investment.
Dr Lucy wanted advice on owning a practice, buying a home, getting started with super, travelling overseas, commission free insurances, a will (in favor of mum and dad for now) and protecting herself in a relationship break down. She said she was not currently in a relationship but “was thinking about one”.
You can read Dr Lucy’s 2004 Statement of Advice here.
Dr Lucy took our advice and bought into a profitable practice as soon as she could, and bought a town house in Kew. She married in 2009 and now has twins. Her partner is the primary carer and Dr Lucy is back at work four days a week.
The practice worked out well, and Dr Lucy up-graded her home in 2011 when the twins came along. She kept the old home as an investment, and kept up the super contributions. Dr Lucy is very busy and has learnt to keep things simple wherever she can: she focuses on her family, her patients, her home and her investments, in that order.
Dr Lucy came back to see us in December 2013. She was now 38.
Dr Lucy’s new home was worth $1,400,000, with a $400,000 home loan (being paid off fast). She also had a positively geared town house (her old home) worth $1,000,000 with a $400,000 loan (not being paid off fast). She also had $600,000 of super with First State (from the merger with Health Super).
Dr Lucy asked for advice on whether:
- she should buy a share of the practice premises? And if so who should be the owner?
- she should start her own SMSF? And if so what should the SMSF invest in?
- her risk insurances needs up-dating?
- her practice trust could deduct a second car?
- she needs a new will?
- she can afford to financially help her parents, who have just arrived from
Dr Lucy also asked us, confidentially, what the financial implications of splitting with her partner would be? And whether she could afford to do this?
You can read Dr Lucy’s 2013 Statement of Advice here.
We met Dr Brad about the same time we met Dr Lucy, back in 2004.
Dr Brad was a late entrant to the medical profession. He originally trained as an accountant, but became bored, and moved on to medical school. He married Angelina, his high school sweetheart, and they had three kids while Brad was still a student. Angelina worked part time (evenings and weekends) as a nurse to make ends meet.
By 2004 Angelina was on higher duties as a mum (except for about eight hours a week handling Brad’s administration stuff: it meant he got some time with the kids on weekends…).
Their bond was strong. Angelina supported Brad right through medical school and Brad was eager to repay her faith, despite having virtually no money at the time. Angelina had high expectations: she is from one of Adelaide’s best families, one of Adelaide’s best suburbs, and one of Adelaide’s best schools.
She wants Adelaide’s best for her children too.
Brad and Angelina were in their late thirties and felt they had a lot of catching up to do.
Brad and Angelina were renting. Brad was earning more than $150,000 a year (this was 2004) but three lots of school fees and Gold Coast holidays were not leaving much change. The truth is they owed more than $20,000 on credit cards, and each week was a juggling act until Brad’s next cheque came in.
Brad was weighing up joining a large corporate practice for $500,000 as a way of kick starting his family’s financial planning process.
We caught up with Dr Brad and Angelina in early 2014. It was interesting to see how they were going. In summary, they were going well. Their kids were teenagers now, Tim age 16, Dim age 18, and Sim age 19,. The older two had finished school, which was good for the family’s cash flow. Their home in Unley Park, bought in 2004 for $800,000 was worth about $1,500,000, and was the mainstay of their wealth. Dr Brad left his old practice in 2009 and bought a one-quarter share of a large local family general practice, using a discretionary trust.
Brad’s new practice joined the former Labor government’s Super Clinic program in late 2009. The practice had ten full time GPs and was clearly a business under the ATO’s public rulings on professional practice structures. Brad got the benefit of a one-quarter interest in a $5,000,000 tax-free property development grant. But the catch is he is committed to the Super Clinic for the next 20 years, and personally liable if for any reason they are not able to provide a wide range of community medical and allied health services.
Dr Brad’s family trust owns one quarter of the units in the practice trust. Net income is distributed equally to the four adult family members (ie Brad, Angelina, Dim and Sim), keeping the tax right down.
Brad and Angelina had maintained maximum super contributions and now have about $1,000,000 in HESTA, invested in Australian shares. They had recently been advised by their bank’s in-house financial planner to transfer this to their self-managed super fund, and invest it in twenty different bank-managed funds, most at the high risk end of the spectrum with a heavy international shares emphasis because “that’s where most of the world is”.
The financial planner had asked them to sign documents allowing him to switch the investments within the bank’s product range without their prior permission. He calls this a “managed discretionary account”.
Brad’s SMSF owns one quarter of the units in a unit trust that owns the practice premises, and which received the tax-free $5,000,000 grant some years earlier. The practice premises are debt free and the market rent is about $300,000 a year (6% yield), of which the SMSF gets one quarter, ie $75,000 a year.
Despite the tax-free grant the practice only makes about $1,400,000 a year, and this is shared equally by the four family trusts. Dr Brad is concerned that:
- the $1,400,000 profit is quite low for a ten GP practice;
- he is working ten hours a week more than the other owner GPs, but his family trust gets the same profit share, ie $400,000 a year;
- the older GPs “think they have made it financially”, no longer have to work hard, and want ridiculously high prices to sell to the next generation of younger GPs;
- profit is relatively low, given they were in effect given a big building by the government and do not really have to pay. Brad thinks the costs are too high, some of the non-owner GPS are seeing enough patients and there are too many administration staff (including the two original owner’s spouses, who really don’t do much these days).
More worryingly, in 2013 Brad’s practice was advised by an Adelaide accountant that:
- their practice structure (a hybrid trust owned by four family trusts) is “a sham”, is tax avoidance and won’t be accepted by the ATO if they are audited and they are about to suffer massive tax penalties; and
- they are at high risk of losing all their personal and family assets due to a medico-legal problem: there has been a slip up in documenting the relationship between the practice and the non-owner GPs (six full time GPs) which means, he wrote, that:
- if a non-owner GP is negligent the insurer will “co-join” the practice trust to the legal action and the directors (ie Brad and his four colleagues) will become liable as directors and will be bankrupted, and
- then their trustees in bankruptcy will look through their family trusts and recover the assets in the family trusts, and
- ultimately they will lose everything to the litigious patient, but
- if they buy his software package none of this will happen and, to make a great deal even better, the tax liabilities of each director will fall by at least $20,000 a year.
Yes this really happened. Brad asked us to review the Adelaide accountant’s advice. You can read Dr Brad’s 2014 Statement of Advice here.
Dr Denzil Toblerone, (Dr Denzy to his patients) is a more recent client.
Denzy arrived from Nigeria in 2006. He started as an employee GP with Queensland Health working at a remote location as part of his visa restrictions. His family, including, his parents, live 200 kilometres east in Brisbane, and Denzy commutes back every second weekend (and his wife visits him every other second weekend).
Denzy worked hard after arriving in Australia, but most of his cash has gone to supporting and educating his family: his two daughters are now GPs, and his two sons are in medical school, and supporting his parents, who only recently arrived in Australia and are not eligible for an old age pension or any other welfare support for at least ten years.
In 2009 Denzy was asked if he wants to buy the practice: it’s a good practice, and he knows it better than anyone. It has large modern premises provided free by the local hospital, but virtually no professional staff other than Denzy: its impossible to get GPs to the bush.
You can read Dr Denzy’s 2009 Statement of Advice here.
Dr Denzy attended a conference in Melbourne in June 2014 and called in on us for an up date on what he should be doing on the financial side of things.
The early strategy had worked, but his circumstances had changed and they now had a higher income, fewer costs and faced a significant net cash flow each year.
Denzy and Dizzy were interested in a more active asset acquisition strategy, and wanted to invest in property and shares.
You can read Dr Denzy’s 2014 Statement of Advice here.
For many years Dr Mickey was one of our favorite clients. Old school, he was an associate in a four owner practice using a service trust. It was a big practice: more than six full time non-owner GPs plus the four owner GPs. We helped him simplify the practice’s legal and streamline its operational performance using modern business systems and reporting.
Dr Mickey came to see us in 2009. He had not been himself for a while now. He was 60 and finding things harder than he used to. His kids were finally off his hands, and his wife Judy felt it was time they let up and got a bit of “we time” together, while they still could.
But Dr Mickey’s three colleagues would not let him go. They demanded he kept working full time, just like them.
Dr Mickey’s original e-mail asking for a meeting stressed co-ownership contentions. But during the meeting it turned out the co-ownership was causing the stress. He was 60 years old, not the man he used to be, and did not know what to do.
You can read Dr Mickey’s 2009 Statement of Advice here.
The good news is Mickey took our advice back in 2009 and simplified his life. He left the Costley and Cumbersome practice as an owner but stayed on as a non-owner GP, working shorter and more flexible hours, and taking a few months off in the middle of the year.
Mickey loves helping his old patients and intends to stay at the CCMC for many more years.
Mickey and Judy are happier now. They are grandparents, and spend a lot of time with their grandkids. They have discretely helped their children buy homes, and this has brought them much satisfaction. They are not working too hard. Judy insists on still doing all Mickey’s admin, and she is the one we talk to, and she tells us all is now well.
They are financially secure, are only working because they want to, and life is good. Mickey is now 65 and making more than $150,000 a year and paying virtually no tax.
You can read Dr Mickey’s 2014 Statement of Advice here.