With a large portion of the money that doctors earn going to tax, it isn’t uncommon for many to use different tax minimisation strategies in order to get the most out of their income. However, although tax minimisation is entirely legal if done in good faith, doctors run the risk of being charged for tax avoidance if they mishandle their tax minimisation efforts.
The legal basis for determining tax avoidance is provided for in Part IVA of the Income Tax Assessment Act. This is embodied in a three-point test that asks:
- Does the minimisation involve a scheme?
- Did the taxpayer obtain a tax benefit because of it?
- Was the sole or dominant purpose of the scheme simply to obtain a tax benefit?
If the answer is yes to all these three questions, then the tax minimisation strategy that was used constitutes an act of tax avoidance that may be brought against the taxpayer.
Hiring an accountant familiar with the medical profession and its particular taxation-related quirks is, arguably, the best way to avoid tax avoidance issues in the long-term. With their intimate understanding of tax rulings, such accountants can provide insight into the different matters that might see doctors’ tax minimisation efforts flagged by the relevant authorities so that they can be avoided or resolved.