1 September 2026 · 15 min read

Tax Planning for Doctors and Dentists: Structuring Your Practice for 2026-27

For most doctors and dentists, structure is something you set up once and rarely revisit. That has become an expensive habit. Over the last two years the ATO has published new guidance that goes directly at how professionals hold and distribute their practice income, every mainland state has landed on a different payroll tax position for medical and dental practices, and a new tax on large super balances starts this financial year.

None of that makes structuring pointless. It makes the difference between a defensible structure and a lazy one much larger than it used to be. This guide walks through the decisions that actually matter for 2026-27 — in the order you should make them.

Dentist? Our dentists hub has real income and practice benchmarks, plus guides on associate pay and payroll tax.

What's actually new for 2026-27

Four changes matter most if you earn professional income from your own clinical work.

The personal tax rates you are planning against also moved. From 1 July 2026 the second bracket dropped from 16% to 15%, with a further cut to 14% legislated for 1 July 2027.

Plus the 2% Medicare levy, and the Medicare levy surcharge if you don't hold appropriate private hospital cover. A base rate entity company pays 25%; a company that fails the base rate entity test pays 30%.

Start with the income question, not the structure

The most common structuring mistake we see in medical and dental files is starting with the entity. Someone sets up a company or a discretionary trust, bills through it, and distributes the surplus. The threshold question is not "which entity" — it's whether the income is legally capable of belonging to anyone other than you.

If more than half the income from a contract is a reward for your personal skills, labour or expertise, it is personal services income (PSI). For a solo doctor consulting at a practice, or a dentist working as an associate under a facility agreement, that is usually the case. PSI stays taxable to you unless the entity earning it is a personal services business (PSB).

There are two ways to be a PSB. You either meet the results test, or you pass one of three other tests and clear the 80% rule.

The results test

Met for at least 75% of your PSI, this test alone makes you a PSB. It requires all three of: payment for producing a result rather than for hours worked; you supply the plant, equipment or tools needed to do the work; and you are liable for rectifying defects in the work. Clinical sessional arrangements paid on a percentage of billings frequently fail this test, because the practice supplies the chair, the surgery, the equipment and the staff.

The 80% rule and the other three tests

If 80% or more of your PSI comes from one client and its associates, you fail the 80% rule and cannot self-assess as a PSB through the other tests at all. That single fact decides a lot of cases: a dentist working four days a week at one corporate practice, or a specialist whose billings all flow through one hospital group, is usually over the 80% line.

Where you are under 80%, you then need one of:

• • Unrelated clients test — services to two or more unrelated clients, obtained as a result of making offers to the public (a website alone is generally not enough on its own).
• • Employment test — an employee, partner or contractor performs at least 20% by market value of the principal work, or you employ at least one apprentice for at least half the year.
• • Business premises test — premises used exclusively for the business, physically separate from your home and from your clients' premises, held on an exclusive basis.

Practice owners with employed staff, multiple revenue streams, their own premises and genuine business risk are usually outside the PSI rules altogether — the income is from a business structure, not just your personal exertion. That's a genuinely different starting point from a sole practitioner contracting into someone else's clinic.

PCG 2025/5: passing the PSB tests is no longer the finish line

This is the change most medical and dental clients haven't yet acted on. On 28 November 2025 the ATO issued Practical Compliance Guideline 2025/5, setting out when it will apply Part IVA — the general anti-avoidance rule — to personal services entities. The key point is blunt: Part IVA can apply even where the entity qualifies as a PSB.

For years, "we pass the unrelated clients test" was treated as the end of the conversation. Under PCG 2025/5 it is the beginning. Once PSI is legitimately earned by your entity, the ATO now asks a second question: where does it go, and why?

The guideline applies to arrangements both before and after its issue date, but the ATO has signalled that taxpayers making a genuine attempt to move into the lower-risk category by 30 June 2027 can expect a lighter compliance touch. That gives you this financial year and the next to fix it — which sounds generous until you consider that unwinding a structure often involves CGT, Division 7A loans, and trust deed amendments that cannot be done in June.

Practice owners with a genuine business — not just personal exertion income — should also read this alongside PCG 2021/4, the ATO's risk framework for allocating professional firm profits. It applies to professional practices including medical, and works by two gateways (commercial rationale, and no high-risk features) followed by three scored factors: the share of profit entitlement returned to the practitioner, the effective tax rate on the practitioner's total profit entitlement, and their remuneration measured against a commercial benchmark for the role.

Service trusts: what they do and don't do

A service entity — usually a discretionary trust — provides the practice with premises, equipment, administration, reception, billing and nursing support, and charges a fee for doing so. The clinical entity claims the fee as a deduction; the service trust earns the margin and can distribute it. Done properly, it is a long-accepted structure with real benefits: separating clinical liability from practice assets, holding the fit-out and equipment away from clinical risk, and giving you a sensible vehicle for admitting a future partner.

Two things it is not. It is not a way around the PSI rules — if the income is a reward for your personal clinical work, routing it through a service arrangement does not change that. And it is not a payroll tax shield; state revenue offices look at substance, and a service agreement that recharacterises the same relationship on paper has repeatedly failed.

The ATO's position on service entity arrangements draws on IT 276 and TR 2006/2. Its published guidance sets out indicative rates that, if you stay within them, carry little risk of the fee amount itself being reviewed. For medical practitioners, the indicative benchmark is a service fee of roughly 40% to 45% of gross practice fees. The ATO also flags that it may ask for an explanation where more than 30% of the combined net profit of the practice and the service entity is earned by the service entity.

What actually gets service trusts into trouble is rarely the percentage. It's the file:

• • No written service agreement, or one signed years ago and never updated as the practice changed
• • A fee that has never been recalculated, or is set to whatever amount produces a convenient result
• • Services the trust charges for but demonstrably does not provide — no staff, no assets, no invoices
• • Private expenses run through the service entity
• • Operating costs artificially suppressed to inflate the trust's margin
• • Trust distribution resolutions signed after 30 June, or not signed at all

If you have a service trust, the annual job is small and non-negotiable: review the agreement, recalculate the fee against what was actually provided, keep evidence that the services happened, and sign distribution resolutions before 30 June. We cover the resolution side in more detail in our guide to trust distributions for small business families.

Payroll tax: a different answer in every state

Since the Thomas and Naaz line of cases, state revenue offices have treated payments to contractor practitioners under a practice-administered billing arrangement as taxable wages in many circumstances — regardless of what the agreement calls the relationship. Where the practice collects the patient fee, retains a service percentage and remits the balance to the practitioner, that has been a recurring feature of adverse findings.

Governments then responded with a patchwork of relief. As at September 2026, the position looks broadly like this — and it is worth checking the current position with your adviser before relying on any of it, because this area has moved repeatedly.

The pattern worth internalising: relief has been built almost entirely around bulk-billed general practice. If you are a dentist, a non-GP specialist, an allied health practice or a predominantly privately billed clinic, you are largely outside it — and you are operating in a post-amnesty environment where revenue offices have signalled they intend to look.

This matters especially if you operate across borders. A practice with rooms in Melbourne's north and Brisbane is running two different payroll tax regimes with two different thresholds and two different definitions of exempt work, under one set of contractor agreements. That combination is where most of the unpleasant surprises live.

Practical steps for 2026-27: get your contractor agreements reviewed against the current position in each state you operate in; look at who actually collects the patient fee and in whose name; check whether your practice management software is set up so that practitioners bill in their own right where the arrangement is genuinely a facility arrangement; and if you are relying on a bulk-billing threshold, monitor your percentage through the year rather than discovering in July that you fell below it.

Structuring by career stage

The right structure changes as your income mix changes. Getting ahead of it is cheaper than retrofitting.

Registrar or new graduate with some private income

Almost always: no entity. PAYG salary plus locum or sessional income sits fine in your own name. The wins here are unglamorous and reliable — clean separation of income streams, an ABN and GST registration if required, deduction substantiation that actually holds up (CPD, registration, indemnity, professional subscriptions), quarterly PAYG instalment planning so you're not caught by a large first assessment, and being deliberate about HELP repayments as your income steps up. A company at this stage usually costs more in compliance than it saves.

Associate dentist or contractor specialist

This is where the PSI analysis earns its keep, and where the answer is often "your own name, with better records" rather than a structure. If you're at one practice for most of your income, the 80% rule likely settles it. Concentrate instead on service fee deductibility, GST treatment of your arrangement, whether the practice is treating you as a contractor for super purposes when the arrangement may make you an employee for SG, and building enough deduction evidence to support what you claim.

Practice owner

Here structure genuinely matters. You have employed staff, premises, equipment, goodwill and real commercial risk. The typical shape is a clinical entity, a service entity holding the fit-out and employing the support team, and — where the practice owns its rooms — a separate entity or SMSF holding the property. The live issues are the ones this guide has covered: PCG 2021/4 profit allocation, PCG 2025/5 where clinical income is still substantially your own exertion, service fees set and documented properly, payroll tax on contractor practitioners, Division 7A on any loans out of a company (benchmark rate 8.77% for 2026-27), and trust distribution resolutions signed on time.

Approaching sale or succession

The structure you sell out of determines your tax outcome, and it takes years to change. Access to the small business CGT concessions turns on tests measured at the time of the CGT event — the $6 million net asset value test or the $2 million aggregated turnover test, the active asset test, and for share or unit sales the significant individual and CGT concession stakeholder requirements. Practices where goodwill sits in the wrong entity, or where a corporate beneficiary has been used casually, routinely find concessions unavailable. If sale is within five years, model it now.

Super: the 2026-27 numbers and Division 296

Super remains the most reliable structural tax concession available to high-income practitioners, and the thresholds indexed on 1 July 2026.

Two points that specifically affect doctors and dentists. First, carry-forward concessional contributions: if your total super balance was under $500,000 at the previous 30 June, you can use unused cap space from the last five years. That is a well-suited tool for a practitioner with a spike year — a practice sale, a large private billing year, a capital gain. Second, Division 293 adds a further 15% on concessional contributions where your income plus those contributions exceeds $250,000, which most established specialists clear. Super is still strongly concessional at that level, but the arithmetic is not the headline 15%.

Division 296

Division 296 applies from 1 July 2026. In its legislated form it imposes an additional 15% on earnings attributable to the portion of a total super balance between $3 million and $10 million, and an additional 10% above $10 million — a top rate of 40% on that slice. Importantly, the final legislation taxes realised earnings rather than unrealised gains, and the thresholds are indexed ($150,000 increments for the $3 million threshold, $500,000 for the $10 million one).

2026-27 is a transitional year: the first assessment is based on your balance at 30 June 2027. If you are a practice owner with a large SMSF — particularly one holding the practice rooms, which is common in dentistry — this is worth modelling before the year ends rather than after. Property-heavy funds may face a liability in a year with limited liquidity, and the answer is usually about cash planning inside the fund, not a rushed restructure.

Payday Super

From 1 July 2026 super contributions must reach your employees' funds within seven business days of payday. For practices running fortnightly payroll for nurses, hygienists and reception staff, this is a systems change, not a policy change — clearing house timing, bank cut-offs and stand-down periods all matter now. Our Payday Super employer guide walks through the mechanics.

Your 2026-27 action checklist

• • Test your PSI position honestly. Run the results test and the 80% rule on each income stream, not on the practice as a whole.
• • Assess yourself against PCG 2025/5. If profits are being retained or distributed away from the practitioner who earned them, you have until 30 June 2027 to move — and restructuring takes longer than that sounds.
• • Refresh the service agreement. Recalculate the fee, evidence the services, and check it against the ATO's indicative benchmarks.
• • Review contractor practitioner arrangements for payroll tax in every state you operate in, and again if you open a new location.
• • Diarise trust distribution resolutions for well before 30 June 2027.
• • Check Division 7A loans against the 8.77% benchmark rate and make minimum yearly repayments on time.
• • Model Division 296 if your total super balance is near or above $3 million, focusing on fund liquidity at 30 June 2027.
• • Confirm Payday Super readiness in your payroll system before the first pay run you can't fix retrospectively.
• • If sale or partnership admission is within five years, test small business CGT concession eligibility now, while the structure can still be changed.

The through-line

Every change described here points the same direction. Structures that reflect a real business — real staff, real premises, real risk, real documentation — are still well protected. Structures that exist mainly to move your clinical income somewhere it is taxed less are being closed off, from three directions at once: the PSI rules, Part IVA under PCG 2025/5, and state payroll tax looking through contractor labels.

That is not a reason to avoid structuring. It is a reason to structure for the commercial reasons that were always the better ones — asset protection, bringing in partners, funding growth, planning an exit — and to keep the paperwork that proves it.

This article is general information current as at September 2026, based on ATO guidance (including PCG 2025/5, PCG 2021/4, TR 2006/2 and IT 276), legislated 2026-27 rates and thresholds, and published state revenue office positions. Payroll tax treatment of medical and dental practices has changed repeatedly and varies by state. This is not personal tax, legal or financial advice — speak with a registered tax agent about your own circumstances before acting.

Your local advisers

Structuring advice built around clinical practice

Zahid and Inam work with doctors, dentists and practice owners across Melbourne and Brisbane on service entities, payroll tax exposure, and career-stage tax planning.

Zahid Chowdhury

Founder & Principal Accountant

Zahid helps with structure, strategy, and big tax decisions so you can grow with confidence.

Inam Asiful

Senior Consultant

Inam keeps your BAS, payroll, and tax lodgements clear, accurate, and on time.

Disclaimer: This article is general information only and is not tax, financial, or legal advice.

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