Tax Implications to Consider in Relation to your Medical Property
These are some of the key tax requirements to consider when owning or leasing property for your Medical practice:
These are some of the major tax implications to consider:
- Ownership structure
- Depreciation
- Deductibles
- Capital gains
- Income tax
Whether you own or are considering purchasing a property for the purpose of establishing your medical practice, it is important to consider any tax implications and minimise your tax exposure. The Australian taxation system can be complicated, and we suggest seeking professional advice about your property.
Steven Wilkie, Director at Bongiorno & Partners, advises that owners of premises should consider the following factors:
1. Structure of ownership of the property
- A purchase can be considered via your own name, your spouse’s name, a trust or a superannuation fund.
- There are positives and negatives for each owner type, whether it be finance or lending restrictions, income tax or capital gains tax.
- Is the property owned 100% by you or your associates or jointly with others? You may be impacted by the choices each party to the transaction makes.
2. Finance
Most of the banks lend less on a commercial property, that is, a lower loan to valuation ratio (LVR), thus requiring a greater deposit, sometimes higher interest rates may also apply. There are a few banks that feel comfortable lending to Medical Professionals and therefore have fewer restrictions than others.
3. Capital Gains Tax implications of the structure
- There exists, small business capital gains tax concessions for any entity that sells an asset used predominantly in a business.
- This can mean low or no tax on eventual sale which can lead to significant savings.
- There are different tests to pass to qualify for the Concessions. These tests can vary slightly depending on the structure.
4. Holding costs, including depreciation
- Holding costs are a deduction to the entity that owns the business property, examples of this includes Council and water rates and potentially strata fees.
- Remember to assess the land tax impact (different entities have different land tax rates) and car parking levies (for some areas of Sydney).
- Depreciation is another cost that can be claimed as a deduction. For newer buildings, this can be a significant amount and you should engage a Quantity Surveyor to prepare the appropriate reports to quantify the amounts that can be claimed.
- Depreciation can be applied to both the Plant and Equipment or contents of the office but also to the building itself (Division 43 ITAA1997 also known as Capital Works Allowance or Building Write-off)
5. Income tax implications
- The tax impact of property ownership differs depending on the entity owning the property. For example, did you know that a negatively geared property may not be as effective in a Trust or, that a company cannot access a 50% General CGT Concession on sale of an Asset?
- Is a fitout of the premises required? If so, will this be undertaken by the property owner or another entity (eg the operating entity)? Often there are compelling reasons for it to be the operating entity.
Steven Wilkie (B.Econ.(Accounting), CA, CTA) is a Director at Bongiorno & Partners. Bongiorno has access to specialised accounting and taxation facilities exclusively for medical and dental practitioners. Bongiorno prepare all Tax Returns and BAS for their clients. Bongiorno provide advice on tax issues for all investments, borrowing or business matters.
As this general advice has been prepared without taking account of your objectives, financial situation or needs, you should consider the appropriateness of this advice before acting on it.
