As practices in the health industry mature, one of the most common and consequential questions we see is: ‘Is our current structure still fit for purpose?’
The structure you choose for your practice affects far more than taxes. It influences profit sharing, risk management, succession planning, admission of new practitioners and how easily you can scale or exit. Yet many practices continue operating in structures designed for a solo practitioner phase long after they’ve become a multi‑doctor or multi‑site operation.
Following the Federal Budget announcements, the question of which structure is right for your practice has taken on greater importance. While the proposed changes to the taxation of trusts may influence how certain structures are used, their broader role within a practice will continue to depend on commercial, operational and succession considerations. With further detail to come as legislation is introduced, this is a timely opportunity to review how your current structure aligns with your needs. For more on the proposed changes and how they may apply, visit read our budget analysis on Trusts
Companies
Companies are often used in group practices for service entities, employing staff and holding non‑clinical assets.
Why practices have chosen companies:
- Limited liability: Risk is generally contained at the corporate level
- Clear governance: Directors, shareholders and decision-making roles are well defined
- Flat tax rate: Company tax, generally 25% for base rate entities, can assist with short term cash flow management
- Easier banking and leasing: Lenders and landlords are comfortable with companies
Limitations:
- Profit extraction: Getting profits out tax effectively can be challenging once dividends are paid
- Inflexible profit sharing: Shareholding often doesn’t reflect clinical contribution, part time roles or changing provider mix
- Succession friction: Transferring shares can trigger CGT and stamp duty issues and requires careful planning
Companies are excellent operational vehicles or dynamic profit sharing between practitioners whose incomes fluctuate year to year to apply, different classes of shares are required. They provide certainty of income and structure as well as tax outcomes.
Unit Trusts
Unit trusts are commonly used where multiple practitioners share profits, particularly in specialist or multi‑disciplinary practices.
Why practices have chosen unit trusts:
- Proportional profit entitlement: Income is distributed according to units held
- Scalable: New practitioners can buy in by acquiring units
- Asset holding: Trusts are often used to hold business goodwill or property
- Tax planning: Units held by discretionary trusts allow income streaming to family members, subject to integrity rules and the proposed changes to the taxation of trusts.
Limitations:
- Fixed entitlement: Units lock in profit ratios, which may not reflect sessional load, productivity or changing roles
- Valuation sensitivity: Each unit has a market value, impacting buy ins, exits and disputes
- Cash flow mismatch: Distributions must align with trust income, even if some practitioners contribute less clinically in a given period
Unit trusts suit practices with stable ownership and predictable contribution levels but can feel rigid in high‑growth or high‑turnover environments. If trusts are considered fixed trusts they are proposed to be excluded from the Federal Budget changes.
Hybrid Unit Trusts
Hybrid unit trusts combine fixed equity interests with discretionary profit allocation, but is its important to factor in the proposed changes to the taxation of trusts.
Why hybrid trusts have been used:
- Equity vs effort separation: Units reflect ownership, capital, goodwill or risk, while discretionary distributions reflect clinical work, leadership roles or management contributions
- Fairer profit sharing: Adjust distributions without restructuring ownership
- Simplified onboarding: New practitioners can earn into profit participation before buying equity
- Succession ready: Allows gradual transitions rather than ‘all in’ buy ins
Where we have seen them work best:
- Multi GP clinics with varied FTEs
- Specialist practices with mixed seniority
- Allied health groups with contractor like clinicians
- Practices introducing non clinical investors or founders stepping back
Limitations:
- Banks can have an issue with hybrid trusts due to the discretionary nature of the income, so if bank financing is required they may not be practical
Hybrid Unit Trusts provide commercial realism, recognising that ownership and contribution are not always the same.
Most practices don’t start with their final structure. As practices grow, add owners or plan for succession, structures often need to evolve. The issue is rarely whether a restructure is needed, but when and how it’s done.
Common triggers for a restructure include:
- Admitting a new practitioner as an owner
- Growth from a single principal to a true Group Practice
- Profit sharing no longer reflecting contribution
- Succession planning or founder transition
- Expansion into multiple sites or specialties
Restructures can trigger Capital Gains Tax (CGT), stamp duty and increased ATO scrutiny, particularly around goodwill transfers, service entity arrangements and PSI. For this reason, restructuring should be strategic rather than reactive.
There is no ‘best’ structure, only the right structure for where your practice is today and where it’s heading next. What worked when you had three practitioners may hinder you at ten.
Recent Federal Budget announcements around the taxing of trusts of discretionary and hybrid unit trusts does call into a question a need to review your structure. For some, this may mean no changes as the overriding reason for having the trust in the structure maintains its purpose and the tax impact needs to be reviewed. The reason for having a trust in your structure is not purely for tax-driven outcomes. It is important to consider your structure holistically and consider all elements rather than making a rash decision. While we await the full legislation and impact of the changes there is time to review and consider the position a trust or a company plays in your overall structure.
If you’re unsure whether your current structure still supports fair profit sharing, growth or succession, now is the right time to review it. Contact your William Buck advisor to get started.
