The practise of Medicine is a vocation and a profession that only a very select few are privileged to practise.
The honorary title of Doctor takes years of commitment, dedication, sacrifice and a lot of hard work.
The rewards and passion aside the practise of Medicine is lucrative and justly so.
Doctors are some of the smartest people around and certainly are experts in their field of expertise but in our experience are not always properly advised in matters of finance and tax which is not taught at the illustrious institutions where they studied to become Doctors.
As a result of not having a good grasp of legal, finance and tax matters and not being fully apprised of their options, we note that most Doctors voluntarily pay too much tax!!!
It appears unbelievable but that is the case. In essence a successful Doctor will pay the maximum tax rate of 45% on their income versus a Doctor that is correctly structured who only pay 28% tax.
Impossible? No, but it will require that you take the initiative.
The solution is relatively straightforward but does require the implementation of various structures and the registration with the various statutory and medical regulatory bodies.
All Doctors practise as either a sole practitioner (business suicide as the Doctor faces all the risk and places all personal assets at risk) in a partnership (business suicide with other Doctors) or in an Incorporation. All of these options are not tax efficient for the following reasons:
- Sole practitioners and Partnerships are taxed at the highest tax rate of 45%.
- An Incorporation is taxed at 28% (assuming it is not a Small Business Corporation) but Doctors draw a high salary resulting in the same position as above.
- Alternatively, the Doctor draws a salary to an efficient rate (28% personal tax) and the net profits are then taxed at the corporate tax of 28%. In order for the Doctor to access the reserves after tax the Incorporation must declare a dividend. The dividends withholding tax rate is 20% on the dividend declared. The effective rate of the income tax plus the dividends tax will be 42.4%.
- We have come across trust management structures but most of these are not tax compliant.
The optimal position is to only pay a maximum of 28% which is the corporate tax rate.
The Doctor must practise via an Incorporation coupled with a Trust owned Management Company.
We have a comprehensive plan that entails a road map on all the steps that need to be undertaken to achieve the objective and will ensure that the plan is executed in assisting you and your advisers and accounting / financial team in registering the new structure with the HPCSA, BHF, SARS etc in a managed fashion.
Stop being a volunteer that pays too much tax…