6 Common Questions Doctors Ask About Managing PSI Income Through Companies and Trusts

Service entities like a Company or a Trust are a common arrangement among general practitioners (GPs) and other healthcare professionals. We often get calls from doctors asking, “My colleagues and friends are using a company structure to receive income from the practice, paying tax at the company rate, and even employing their spouse for admin work. Can I do the same?”

This article is primarily for General Practitioners (GPs) who work in a medical practice, pay a fee for office space, reception, and other facilities, and have been advised by their accountant to set up a company or trust to minimise tax.

We’ll also break down how service entities work, the tax implications involved, and whether these structures are truly beneficial for you—or simply landmines waiting to trigger an ATO audit. With the ATO ramping up scrutiny in 2025and cracking down on the misuse of service entities, it’s more important than ever to understand the rules and ensure your setup is compliant.

Why Can’t I Pay My Spouse a Fair Wage?

Based on our experience, we firmly believe that a doctor’s spouse should be paid a fair, market-rate salary for administrative work. The majority of General Practitioners (GPs) barely have time to eat, let alone manage their personal or financial affairs. If you’ve ever handled a doctor’s personal matters, you’d know that their spouse often takes on the role of a personal secretary—managing banking, paying bills, handling tax matters, and overseeing investments.

After all, if a professional personal assistant can be paid thousands of dollars for these tasks, why shouldn’t a spouse receive fair compensation when they’re genuinely running around taking care of the same responsibilities?

Unfortunately, we don’t make the rules. And because tax laws don’t always align with common sense, doctors often have to resort to some of the most unusual tax planning strategies just to justify paying their spouses for the work they’re already doing.

Before considering these unconventional strategies, it’s essential to understand the rules surrounding Personal Services Income (PSI) and service entities to avoid serious consequences. While these rules are not new, we’ve seen a growing number of cases where they are misunderstood, ignored, or outright broken—placing health practitioners at risk of breaching Part IVA of the tax law.

Is a General Practitioner’s Income Classified as Personal Services Income (PSI)?

As a medical professional, the income you earn is generally classified as Personal Services Income (PSI). PSI refers to income derived directly from your personal skills, efforts, and expertise. Whether you operate as a sole trader or through a company, trust, or partnership, the tax treatment of this income is governed by specific PSI rules designed to ensure it is taxed correctly.

These rules attribute the income back to the individual who earned it, regardless of the structure used. For medical professionals, this means that income earned from personal work—such as patient consultations or medical procedures—must be included in their personal tax return. Let’s look at an example to understand how PSI rules work.

Example – Imagine you are a GP earning $1,000,000 annually from treating patients. After deducting business expenses, the remaining income must be reported in your personal tax return for the year it is earned.

Under the PSI rules, you cannot:

• Retain the income within a company to benefit from the lower company tax rate, or
• Distribute the income to family members to reduce your overall tax burden.

If you were to engage in such arrangements, the Australian Taxation Office (ATO) could deem this as tax avoidance, potentially resulting in significant penalties. It’s crucial to understand and comply with PSI rules to avoid these risks.

“I Pass the 80% Test” – Why That’s Not Enough? 

You might argue, “I work in multiple medical practices and pass the 80% test.” While passing the PSI tests might classify you as a Personal Services Business (PSB), this does not automatically give you the right to split your income with family members or other associates. A common misconception is that meeting the PSB requirements allows you to distribute income freely to reduce your overall tax liability.

In reality, any inappropriate splitting of personal exertion income with associates is likely to attract the Australian Taxation Office’s (ATO) attention. The ATO may deem such arrangements as tax avoidance (Part 4A) and disregard any perceived tax benefits, potentially leaving you with a hefty tax bill and penalties.

How Can a Medical Practitioner Structure a Company or Trust to Avoid PSI Rules?

Many General Practitioners (GPs) naturally progress to establishing or purchasing their own medical practice, which is a common and logical career move. But when you make that transition and set up a fully functioning practice—with a dedicated premises, reception staff, medical equipment, nurses, and other infrastructure—does it still fall under Personal Services Income (PSI)?

The answer is No. At this stage, your medical practice is no longer just about your personal efforts—it becomes a genuine business. Unlike a PSI entity, a genuine business is not restricted in how it structures employment, including hiring related parties like your spouse for legitimate roles within the practice.

This distinction is crucial because while PSI rules limit how income is distributed, a properly structured medical practice enjoys greater flexibility in tax planning, hiring decisions, and business operations—without the risk of breaching PSI regulations.

How Much Can I Pay My Spouse from My Medical Centre Trust or Company?

If you operate as a Personal Services Business (PSB) such as a Medical Practice, you may be able to pay your spouse a wage and superannuation contributions, provided they genuinely perform necessary work to support your income generation. These payments must reflect market rates for the services they provide to your business. However, if your spouse does not perform any actual work, you cannot pay them a wage or make superannuation contributions on their behalf. entity like a company or a trust. It is highly unlikely that the ATO will permit this arrangement if you are a healthcare professional or GP working for a medical practice, where the medical practice pays an interposed entity, such as a company or trust, instead of paying you directly.

For spouses who are actively involved in the business, superannuation contributions can also be maximised up to the concessional contributions cap, which for the 2025 financial year is $30,000. Ensuring that these payments are properly documented and meet tax compliance requirements is essential to avoid any issues with the ATO. Always seek professional advice to confirm the arrangements align with your specific circumstances.

Does a Company or Trust Protect My Personal Assets?

From an asset protection standpoint, the entity you trade through—whether it’s a sole trader, company, or trust—makes little difference when it comes to professional liability. If you’re a medical practitioner, your personal assets could still be at risk in cases of professional negligence, regardless of how your business is structured.

This is because liability arising from medical malpractice or professional misconduct is typically tied to you as an individual, not just your business structure. That’s why the focus should be on comprehensive professional indemnity insurance rather than assuming a company or trust will shield you.

However, effective structural planning for your personal investments can still play a critical role in reducing overall risk exposure. Strategies such as separating personal and business assets, owning your practice premises through a separate entity, and structuring large assets like investment properties through a trust can help protect your wealth while ensuring tax efficiency. The key is to strike a balance between legal protection, tax planning, and compliance—without mistakenly assuming that a company or trust alone provides a bulletproof shield.

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Conclusion

In conclusion, it’s essential for medical professionals to understand how PSI rules apply to their specific circumstances. With the ATO maintaining a strong focus on PSI compliance and closely scrutinizing arrangements that may attempt to bypass these rules, ensuring your income is managed correctly is critical to avoiding costly penalties. By consulting with a knowledgeable tax advisor, you can gain clarity, structure your finances efficiently, and stay compliant.

At Investax, our Healthcare Specialists team is here to help. We understand the unique challenges faced by medical professionals and can guide you through the complexities of PSI compliance, helping you safeguard your financial future. We can also help you navigate the information you receive from colleagues and friends, explaining why certain approaches may or may not work for your situation. Contact our team today to discuss how we can support your tax planning and financial goals.