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Terry McMaster McMasters’ Accountants, Solicitors and Financial Planners

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Presentation on theme: "Terry McMaster McMasters’ Accountants, Solicitors and Financial Planners"— Presentation transcript:

1 Terry McMaster McMasters’ Accountants, Solicitors and Financial Planners

2  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

3  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

4  Temporary access to through user name mackay123 and password mackay123  Everything in presentation is linked back to detailed manuals explanations and case studies on  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 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

5 1. Practice structures 2. The main tax planning issues 3. Superannuation planning 4. Issues for rural doctors 5. Inter-generational financial planning 6. Issues for foreign trained doctors 7. Retirement planning for doctors 8. Doctors’ (commission free) risk insurances 9. Doctors’ loans/finance profiles 10. Estate planning for doctors

6  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 Structures Dollar Notes 15 th January 2006: The use of practice trusts by large practices Dollar Notes 26 th April 2006: Practice trusts for personal services income practices




10  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

11  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 References The McMasters’ Way: Tax Planning Tax Planning for Doctors and Dentists The McMasters’ Way: Superannuation Planning


13  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: The McMasters’ Way Superannuation The Doctors’ Guide to SMSFs The Doctors’ Guide to Simple Super

14  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 References The McMasters’ Way: Superannuation Planning

15  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

16  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

17  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


19  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)

20  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

21 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

22  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 References McMasters’ Intergenerational Financial Planning McMasters’ Financial Planning for Foreign Trained Doctors

23  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

24  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

25  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

26 Start early and never stop Client’s current projected work pattern Our preferred projected work pattern Work intensity

27  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

28  Hard for solo doctors or others with fixed costs.  Profit falls more than proportionately to hours BEP

29 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

30  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

31 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:

32 IncomeTax 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)$15,000Nil Deductible business interest$10,000Nil Deductible overseas travel$10,000Nil Government co-contributionNil($3,000) Unrealised capital gain: home $30,000Nil Unrealised capital gain: surgery $20,000Nil Investment income in SMSF (tax free) $50,000Nil Total$300,000$19,950 or 6.7%

33  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

34  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

35  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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