Senior Doctors & Locum Work: Structuring, Tax Myths, and Building Wealth

CORRECTION NOTICE, updated 24 August 2026 This episode was recorded from a script that contained several errors, and one part of it has since been overtaken by a change in the law. The audio cannot be changed, so the problems are marked inline through the transcript below and summarised here. Where the recording and this page disagree, this page is right. 1. The 80 per cent rule is stated backwards for this episode's own scenario. If your work comes through one recruitment agency, the agency is the source of your income, so you FAIL the rule no matter how many hospitals you attend. 2. The episode never mentions the RESULTS TEST, which is the primary gateway to being a personal services business and works independently of the 80 per cent rule. A locum paid by the shift would usually fail it. 3. The GST "interest-free loan" is not available to this audience. Annual GST reporting requires turnover under $75,000. 4. Parking super in an offset account across the year now breaches Payday Super, which started 1 July 2026. 5. A second car through the company is the opposite of the rule where PSI applies. Only one car with private use can be claimed. 6. Debt recycling by redrawing in the same facility creates a mixed-purpose loan. It needs a split loan. 7. The episode never mentions DIVISION 7A, despite recommending a company and describing company cash sitting in a personal offset account. Money you draw from your own company is a Division 7A loan and becomes a deemed dividend unless it is repaid by lodgment day or put on complying terms. 8. Also not mentioned, and it has a deadline: PCG 2025/5 gives anyone with a risky PSI arrangement until 30 JUNE 2027 to move it to low risk without facing Part IVA compliance action if reviewed. Verified against the ATO's personal services income guidance, the Payday Super pages, the GST registration and reporting pages and the doctors occupation guide. If any of this affects you, please get advice on your own circumstances rather than relying on the recording. ---------- Welcome, to the Podcast! Our newsletter made easy! Please note, this podcast features A.I generated voices for your hosts, Mia Taylor And Leo Baker. Together, we bring you expert insights from Aevum Accounting owner, Ben De Rosa. Each week, we’re here to help you confidently navigate the ins and outs of Australian tax – whether it's for your individual finances or the complexities of your business. We cut through the jargon to give you strategies for compliance, smart planning, and that ultimate peace of mind. So, if you're looking to understand your obligations, maximise your financial position, or simply gain clarity on your money matters, you're in the right place. Let's get started with our review of the week! This week, we have a shout-out to Kane Rudrum, who left a lovely review saying: "My partner and I were recommended Ben De Rosa, and we have not been disappointed! From our very first interaction with Ben and the team, we have been consistently impressed by the professionalism, knowledge, and support they provide. Their expertise has made every step easy and reassuring. It is clear they genuinely care about delivering a quality service. We look forward to continuing our engagement with Ben and the team. Highly recommend to anyone looking accounting services! That is exactly what we like to hear! Thank you, Kane. And speaking of keeping doctors awake... Mia, today we are focusing on a very specific, high-stakes group: our Emergency Medicine Specialists and senior doctors who are taking on Locum work. This is a huge topic, Leo. We see so many doctors, especially international specialists new to Australia, who jump into locum work for the freedom and the high rates... but they often walk straight into some serious tax traps. Ideally, they want to save lives, not drown in paperwork. So today, we are breaking down the "Medical Locum’s Financial Guide." We’re going to cover the Sole Trader trap, the "80% Rule" myth that everyone gets wrong, and the wealth-building strategies – like debt recycling – that you usually don't hear about in the tearoom. Let’s start with the most common question we get from doctors starting out: "How do I actually get paid?" It sounds simple, right? You get an ABN, you work a shift, you send an invoice. But for medical specialists, it’s not that simple. Most start as a Sole Trader because it’s fast and free to set up. But here is the trap. While a Sole Trader structure is fine for a local GP doing a few hours here and there, major hospitals and the large medical recruitment agencies often simply won't hire you. Exactly. Due to strict liability and insurance policies, they mandate that you operate as a Company a proprietary limited structure. They need that corporate veil between them and you. So, if you stick with your "free" Sole Trader ABN, you are effectively locking yourself out of the best-paying hospitals and restricting your income potential. So, the Company structure is essentially the "key" that unlocks the door to the broader locum market. But Leo, we need to be transparent – it’s not free, is it? No, it’s not. There are setup costs involved to get it done properly, plus you have your annual ASIC fees, and of course, your accounting fees to handle the more complex tax returns and invoicing. Exactly. So there is an ongoing financial commitment to run it. But the trade-off is access to virtually unlimited work and, as we’ll see later, significant control over your cash flow. It’s really important to sit down and assess your options to make sure the extra income outweighs those running costs. Now, Mia, we need to get serious. This next segment is where we see doctors get into real trouble. We need to talk about PSI – Personal Services Income – and the dangerous myths surrounding it. This is the education session, folks. Grab a coffee. PSI essentially means income that is generated mainly by your personal skills, knowledge, or labor. If you’re a doctor seeing patients, your income is almost certainly PSI. And the default rule is this: The ATO looks "through" your company. They ignore the structure and tax that income as if you earned it directly – at your individual marginal rate, which for a specialist is likely the top bracket. But Leo, this is where the "Lunchroom Lawyers" come in. You know, the colleague in the break room who says, Don't worry mate, just pass the 80% rule and you can pay the company tax rate of 25%. That advice is dangerously incomplete. Let’s dismantle it. The "80% Rule" just says that if less than 80% of your income comes from one source, you might be a business. A locum working at three different hospitals passes this easily. [CORRECTION, August 2026: backwards for the scenario this episode is describing. Where work comes through a recruitment agency, the ATO treats the AGENCY as the source of the income, not the hospitals it sends you to. One agency means 100 per cent from one source, so the 80 per cent rule is FAILED however many hospitals you attend. This episode names medical recruitment agencies moments earlier and applies the agency rule correctly to the unrelated clients test a few sentences later. Also worth knowing: the 80 per cent rule is a gateway, not the main test. The results test is the primary gateway and operates independently of it, and a locum paid by the shift would usually fail it.] But passing the 80% rule is just the first hurdle. To be treated as a business, you then have to pass one of the other tests to be considered a "Personal Services Business" or PSB. The most common one doctors try to use is the "Unrelated Clients Test." And this is where people trip up. The Unrelated Clients Test isn't just about having different clients. The law says you must offer your services to the public at large. This usually means you need to be advertising – having a website, a LinkedIn profile for your business, or actively soliciting work. This is the crucial part: Simply registering with a recruitment agency that assigns you shifts at different hospitals often fails this test. Why? Because the agency is doing the work of finding the clients, not you. You aren't making an offer to the public; you're just accepting shifts from an agency. That’s a massive distinction. So, let's say a doctor is savvy. They pass the 80% rule, and let's assume they arguably pass the Unrelated Clients test because they advertise directly to hospitals. They think, "Great! Now I can keep all my profits in the company, pay only 25% tax, and distribute the rest to my low-income spouse." And that, Leo, is the moment the trap snaps shut. It’s called Part 4 A – the General Anti-Avoidance Rules. This is the catch-all. The ATO basically says: "Even if you pass our technical tests, if the dominant purpose of your structure is just to reduce tax on your personal labor, we will strike it down." Let me tell you a quick horror story – let’s call him Dr. Dave. Dr. Dave was a locum who set up a company. He passed the 80% rule. He technically met the requirements. So, he paid himself a small salary and left the bulk of the profit in the company to be taxed at the lower company rate. So far, he thinks he's winning. Then, he paid a dividend to his wife, who didn't work, and sent some money to his retired parents overseas. Oh no. That sounds like a textbook case for an audit. It was. The ATO audited him under Part 4 A. They argued that the only reason he structured it that way was to avoid tax on income he personally generated. They stripped away the company tax rate, re-assessed the entire amount as his personal income at the top marginal rate, and then slapped on penalties and interest for the last two years. That is a financial disaster. So, the lesson is: You generally cannot distribute profits to parents overseas to lower your tax. That is a massive red flag. And you cannot just give your spouse a huge sum of money "just because." Exactly. Don't DIY this. If the "dominant purpose" looks like tax avoidance, Part 4 A will find you. Okay, so if the ATO is likely going to tax the income at my marginal rate anyway because of these PSI rules, why bother paying for a company structure? Great question. Aside from unlocking access to the hospitals that mandate it, there is massive "Hidden Value" in a company structure. The first one is Superannuation Cash Flow Control. This is a big one for locums. Because the money comes into your company first, the super effectively gets paid directly to you so you get to control it. You get to decide exactly when it is contributed to super. That's right. You can have that cash sit in your mortgage offset account or even other investments until you decide to make that contribution. [CORRECTION, August 2026: not since 1 July 2026. Payday Super requires super to reach the fund within seven business days of payday rather than quarterly, and it applies to directors of their own company. Separately, where the PSI rules apply the entity has to pay the salary promptly or the income is attributed anyway. Late payment triggers the super guarantee charge, which is not deductible.] It gives you the power to reduce your personal interest costs throughout the year before moving that money into the super environment. Then there’s the "Spouse Vehicle Strategy." Most doctors already salary sacrifice an electric vehicle for themselves because it’s FBT exempt. But as an employee, getting a second car for your spouse is tough. In a company structure, if there is a legitimate business use – like travel between sites or carrying equipment – you may be able to bring a second vehicle into the structure much more easily. [CORRECTION, August 2026: where the PSI rules apply the opposite is true. Only ONE car can be claimed where it has any private use, including any FBT payments on it, and payments or super contributions to an associate for non-principal work are not deductible either.] And my favourite: GST Deferral. If you register your company for GST annually, you collect that extra 10% on your invoices all year long... but you don't pay it to the ATO until May 15th the following year. That is essentially an interest-free loan from the ATO sitting in your offset account for over 12 months. That benefit alone can often cover the annual running costs of the company. [CORRECTION, August 2026: this is not available to this audience. Annual GST reporting is only open to businesses that are VOLUNTARILY registered, meaning turnover under $75,000. A locum on locum rates must register once turnover reaches $75,000 and therefore reports quarterly or monthly. Even where annual reporting is available the amount held is small, and the due date is the income tax return lodgment date rather than universally 15 May.] And finally, it’s about Future-Proofing. If you ever plan to open a genuine private practice – hiring staff, running a clinic – that is a true "Business Structure," not PSI. Setting up the company now lays the groundwork for that transition. We’re in the home stretch now. Segment 4: Wealth Building 101. Doctors are great at physiology, but often not taught much about finance. Ben always says: I can't save lives like you do, so I don't try. I do tax. You shouldn't guess at tax; you should get a professional. Wise words. I want to deep dive into a concept called Debt Recycling. We mentioned it earlier, but let's explain how it actually works, because it’s a game-changer for high-income earners who have a home mortgage. Let’s break it down step-by-step. Imagine you have a home mortgage of $800,000. That debt is "bad debt." Why is it bad? Because the interest you pay on it is not tax-deductible. It comes out of your after-tax income. You have to earn significantly more just to pay the interest. Correct. Now, let’s say you’ve saved up $100,000 in cash from your locum work. Most people would just put that into their offset account or pay it directly off the loan. That’s good it saves you interest, but we can do better. With Debt Recycling, you take that $100,000 and you pay down the loan directly. But you don't close the loan facility. You then "redraw" that same $100,000 back out. [CORRECTION, August 2026: redrawing inside the SAME facility creates a mixed-purpose loan, and in a mixed account you cannot direct later repayments at the non-deductible part. Repayments have to be applied proportionately across both purposes, which breaks the last step of this strategy. It needs a separate split loan or sub-account, and that is the step the episode never mentions.] This is the magic moment. Because you have redrawn that money with the specific purpose of investing it – say, buying a portfolio of blue-chip shares or ETFs – the interest on that $100,000 portion of the loan now becomes tax-deductible. So, you still owe the bank the same amount of money. You still have your $800,000 debt. But now, $100,000 of it is good debt (tax-deductible) and only $700,000 is bad debt. Exactly. You’ve converted the nature of the debt without changing the total amount. And then, you take the dividends from those shares, plus your extra locum income, and use them to pay down the bad debt even faster. Then you repeat the process. Over time, you "recycle" your entire mortgage until every dollar of debt you have is tax-deductible. It accelerates your wealth building significantly compared to just paying off the house slowly. It’s brilliant, but it requires strict discipline and correct loan structuring. This is where you need a team. You need a qualified accountant to handle the tax side, and a professional Financial Planner to advise on the actual investments. And briefly, Mia, how does this compare to Negative Gearing? Negative Gearing is where you buy an investment property where the costs are higher than the rental income. You make a cash loss, say $10,000 a year. Which sounds bad... why would I want to lose money? Because for a specialist on the top tax bracket, that $10,000 loss reduces their taxable salary. They are effectively losing $1 to get nearly half of it back in a tax refund, hoping the property value goes up in the long run. It’s a proven strategy, but it relies heavily on capital growth. Debt recycling can sometimes be safer because it uses your existing home debt rather than taking on massive new debt for a rental property. That was a massive episode. We’ve covered everything from Part 4 A horror stories to the mechanics of recycling your mortgage. Let’s wrap up with a quick checklist for our listeners. Number 1: Check your Structure. Are you stuck as a Sole Trader and missing out on shifts? Weigh up the running costs of a company against the extra income access. Number 2: Beware the "Lunchroom Lawyer." Just because a colleague says they split their income doesn't mean it's legal. Watch out for the "Unrelated Clients Test" and Part 4 A. Number 3: Maximise your "Lazy" Deductions. Review your CME allowance, your devices, and your home office use. Number 4: Keep a Logbook. If you drive to different hospitals carrying equipment, a valid logbook is the only way to maximise those vehicle claims. [CORRECTION, August 2026: a logbook only helps where the travel is deductible in the first place. Driving from home to a hospital where you are regularly rostered is private travel, whichever day of the week it is. What is deductible is travel directly between two separate workplaces on the same day, and travel to an alternative workplace. And if the PSI rules apply, only one car with private use can be claimed at all.] And Number 5: Build your Team. Don't guess at wealth creation. Talk to an expert about your structure and your investments. Don't rely on the rumour mill. Get proper advice. That brings us to the end of another episode! We hope today's discussion has provided you with valuable insights. Before we go, a quick but important reminder: The information and strategies shared on this podcast are for general informational purposes only and do not constitute specific tax or financial advice. Everyone's situation is unique, and tax laws are complex and constantly evolving. For personalized advice tailored to your specific individual or business needs, we always recommend consulting with a qualified professional. You can connect with our team by visiting our website at Aevum Accounting .com .au to book in and learn more. Thank you so much for tuning in! If you enjoyed this episode, please consider subscribing, leaving us a review, and sharing it with anyone who might benefit. and until next time... Stay savvy, and keep building your financial future! Goodbye for now!