To present a technically competent presentation on financial planning for doctors in terms all attendees can understand and relate to
To improve each attendee’s understanding of financial planning for doctors
To allow each attendee to take away at least one specific recommendation that will immediately improve their financial profile
To allow each attendee to take away at least one specific recommendation that will immediately improve their taxation profile
Get the structure right Get the tax planning right Eliminate non-deductible debt Pay maximum super contributions Get the super planning right The best investment is your practice Invest passively in low risk, low cost,
commission free investments Use debt carefully. Avoid non-
deductible debt Insure prudently Have a will that fits your circumstances Never trust anyone rewarded by a
commission Never touch a tax scheme Never let anyone else control your
money Work shorter for longer Take lots of holidays
Temporary access to www.mcmasters.com.au through user name mackay123 and password mackay123
Everything in presentation is linked back to detailed manuals explanations and case studies on www.mcmasters.com.au
I refer you in particular to the Common Planning Strategies section and invite you to explore what can be done for a doctor with your age and practice profile
Please feel free to download all our display manuals: they are there for you to use to your advantage
Contact Terry McMaster on [email protected] or 03 9583 6533 if any specific assistance or further information is needed
No problem with a Skype conference or a teleconference if you think this will be of assistance
1. Practice structures2. The main tax planning issues3. Superannuation planning4. Issues for rural doctors5. Inter-generational financial
planning6. Issues for foreign trained
doctors7. Retirement planning for
doctors8. Doctors’ (commission free) risk
insurances9. Doctors’ loans/finance profiles10. Estate planning for doctors
Trust based structures are best: Cheap and easy to set up and run Legitimate deferral of tax Amenable to all tax planning strategies Particularly amenable to debt conversion
strategies Access to concessionally taxed fringe benefits,
particularly cars No payroll tax or other employment on-costs Amenable to inter-generational financial
planning strategies
Hybrid trusts for group practices Discretionary trusts for solo practices that
are businesses PSI trusts for other solo practices
Website References: The McMasters’ Way: Legal StructuresDollar Notes 15th January 2006: The use of
practice trusts by large practicesDollar Notes 26th April 2006: Practice trusts
for personal services income practices
Investment allowance of 50% of the cost of new cars and other new equipment
Co-contribution for low tax rate relatives including parents and kids
Employ kids between age 15 and 18
Distributions to under age 18 nephews and nieces and other relatives
Pre-pay interest Defer income Last chance for large deductible
super contributions Superannuate relatives Second investment company FTA eligibility? Do not touch tax schemes
Deductions for interest Correct use of family trusts
$3,000 under age 18 threshold in 2009 and beyond
Distributions outside the immediate family Distributions to investment companies
owned by trusts Deductions for multiple company cars Deductions for overseas travel Employing relatives:
Spouse, children under age 18, parents Large deductible Superannuation
contributions: Gearing Doctor, spouse, parents, children Family tax assistance? (stops 1 July 2009)
Website ReferencesThe McMasters’ Way: Tax PlanningTax Planning for Doctors and DentistsThe McMasters’ Way: Superannuation Planningwww.mcmasterssuper.com.au
Simple Super is great LDCs are mandatory. Up to $200,000
for a couple over age 50 before 30/6/9m $100,000 thereafter
Tax benefits up to $63,000 cash a year before 30/6/9, $31,500 thereafter
Very little tax paid on investment earnings
No tax on benefits after age 60 Height, stability and scalability of
income and borrowing ability means all doctors should maximise DCs each year
New rules make this even more important: no space to catch up later on
References:www.mcmasterssuper.com.auThe McMasters’ Way SuperannuationThe Doctors’ Guide to SMSFsThe Doctors’ Guide to Simple Super
Superannuate maximum amount each year: $50,000 up to age 50 ($25,000 from 1/7/9), $100,000 otherwise ($50,000 from 1/7/9) Double if you are married: no limit on quantum of
spouse contribution once spouse established as an employee for superannuation purposes
Benefits of up to $63,000 a year [ie $200,000 times (46.5% less 15%)]
Planning ideas: LDC for doctor LDC for spouse LDC for parents LDC for children (?) Gearing Family tax assistance? (stops 1 July 2009) Spouse transfer Non-concessional contributions for low income
relatives to access the $1,500 Government co-Contribution ($1,000 for three years from 1/7/9)
TTRP at age 55 with salary sacrifice TTRP at age 60 with salary sacrifice Double trap Early trap
ReferencesThe McMasters’ Way: Superannuation Planningwww.mcmasters.com.au
Doctors control their own investment strategies
Low costs: as low as $600 per annum irrespective of amount of benefits invested
No commissions No hidden fees and costs Amenable to our tax planning
and financial planning strategies
Control over trustee decisions No risk you will wake up to find
your money has gone No need for expensive software
and investment portfolio management systems
Part of our KIS principle
Not just Health Super, but all industry super funds
No commissions Low management fees No middlemen Good corporate governance Great for balances less than
$100,000 Some control over asset
selection Low cost universal insurance Consider multiple industry
funds to access multiple and cumulative no medical life cover
Government sanctioned tax haven Tax benefits of up to $63,000 cash a
year Get the super snowball rolling as big
and as fast as possible and as young as possible
SMSF = a concessionally tax investment vehicle with an average tax on earnings less than 5% per annum
Doctors have high, stable, long and scalable incomes
Doctors have significant borrowing abilities if something does go wrong
Makes sense to not pay off debt until super contributions are maximised
On its own will make every client a wealthy person
Being average is good. Most professional
investors do not achieve the average.
No commissions. Management fees only
0.35% due to lower cost structure
No need to waste time learning about investments
Work well with dollar cost averaging
A small parcel of blue chips shares from the ASX top 20 will perform the same way
Warren Buffet agrees with us (which may be reassuring)
Incomes are higher than in metro areas
But hours are longer too Living costs are lower until private
secondary school fees start Use practice nurses to qualify as
businesses Use trust based structures,
investment companies and self-managed super funds for investment purposes
Invest in metropolitan real estate, ie city homes for country doctors
Passive investment strategies based on commission free investments and dollar cost averaging principles
Example: client from mid-north Victoria Bought rental property in Fitzroy in
1983 Classic negatively geared property
in eighties Eldest child moved in at uni 1990:
classic student household next ten years with tax free board paid to his three kids by un-related house sharers
Then three kids lived there rent free as young professionals, and bought their own homes as rental properties
Now lived in by clients as their Melbourne home: have moved to be near the grandchildren
Wonderful appreciation, and great tax benefits
The same thing will happen over the next thirty years
A growing issue effecting many doctors that opens up powerful planning opportunities
Upwards support, downwards support, or both
Special case: disabled children Ideas include
Employing parents and/or children, as employees and/or directors
Superannuating parents or children Superannuation co-contribution Company cars Trust distributions to low tax rate family
members Non-concessional contributions for older
parents Guarantee parental loans for DIY reverse
mortgage Rent homes to parents/adult children Loss making businesses in doctor’s name
ReferencesMcMasters’ Intergenerational Financial PlanningMcMasters’ Financial Planning for Foreign Trained Doctors
Usually have a lower asset base than otherwise
Often supporting family members in Australia and overseas
Strategies discussed previously have a higher relevance and a greater urgency
Many FTDs are ripped off by commission salesmen: recent examples of more than $500,000 of dodgy investments now worth nil
Conflict between KIS and need for a business strategy
McMasters’ Financial Planning for Foreign Trained Doctors details and explains the issues
Should you own your own practice?
How should your practice be structured?
Buying your cars Buying your home. Where? Investing through
superannuation Financial assistance to parents Financial assistance to other
relatives, in Australia and overseas
Estate planning Borrowing issues: cultural
conflict
Burn out is a real issue amongst older doctors, particularly male doctors in rural areas
At age 40 most doctors have already done more than a “normal” working life
High pressure Health problems High morbidity rates Marital stress
Start early and never stop
Client’s current projected work pattern
Our preferred projected work pattern
Work intensity
Start early and never stop Live longer Have more fun Do more good Make more money Pay less tax And if you die, even better
Hard for solo doctors or others with fixed costs.
Profit falls more than proportionately to hours
BEP
Solution for solo doctors? Sell your practice Amalgamate your practice
and negotiate a lower management fee on own patients and reducing hours
ensure continuity of care CGT exemptions on surgery If all else fails, abandon your
practice and go somewhere else
Serious shortage of GPs right around Australia
Most practices are desperate for assistance
Age is not an issue if you are a GP
You are interviewing them, they are not interviewing you, and will be flexible on working hours and related issues
No reason why any doctor in good health cannot start to retire at age 55 and finish at age 75, earning a very high income in a very tax efficient form each year
Dr John is a married 61 year old part time GP with $200,000 of practice income, and $100,000 of investment income comprising an unrealised capital gain of $30,000 on his home, an unrealised capital gain of $20,000 on his practice premises and $50,000 of dividends in his self-managed super fund.
Dr John’s tax profile looks like:
Income Tax
Dr John’s income $34,000
$4,200
Betty’s income $20,000
$2,100
John’s super $55,500
$8,325
Betty’s super $55,500
$8,325
Car costs (two cars) $15,000
Nil
Deductible business interest
$10,000
Nil
Deductible overseas travel
$10,000
Nil
Government co-contribution
Nil ($3,000)
Unrealised capital gain: home
$30,000
Nil
Unrealised capital gain: surgery
$20,000
Nil
Investment income in SMSF (tax free)
$50,000
Nil
Total $300,000
$19,950 or 6.7%
McMasters’ Commission Rebate Scheme means clients pay the lowest possible cost
First year commissions greater than first year premiums
Do not over-insure: its a bet you will probably lose (unless there is something you are not telling us)
Usually there is no need for trauma or TPD insurance
All premiums should be tax deductible Consider a 90 day waiting period on
income protection insurance Consider no-medical universal life cover
through low cost industry super funds including Health Super and HESTA
Do not cancel an insurance policy until you know a new policy is in place or you are 100% satisfied you do not need the insurance
No commissions Minimise the interest rate Maximise deductibility Minimise after tax costs of interest Avoid expensive and tax in-efficient forms
of finance, particularly hire purchase, leases and chattel mortgages
Avoid credit card interest: use automatic payment options
Arrange two separate lines of credit, one for business/investment purposes (deductible) and one for private purposes (non-deductible)
Borrow to pay costs where interest is deductible, such as deductible interest, taxation, employer superannuation contributions, personal deductible costs
Use extra cash flow to pay off expensive non-deductible loans
Consolidate loans wherever possible Keep it as simple as possible
You can download a sample will and explanatory materials from the McMasters’ Way: Estate Planning
Testamentary trusts Asset protection against trustee in
bankruptcy and the Family Law Court Income tax advantages for
children/grandchildren under the age of 18
Low risk investment options only Consider what assets are subject
to your will: Joint tenancies Superannuation balances Assets owned in trusts
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