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

Medical Locum Tax Strategy Australia

For many senior medical specialists, locum work offers a tantalising promise of freedom, higher rates, and a break from the administrative grind of a permanent hospital role. However, stepping out on your own often means walking into a complex financial landscape that many doctors aren't prepared for.

At Aevum Accounting, we see many specialists, especially those moving to Australia from overseas, jump into locum work without a clear blueprint. Ideally, you want to be saving lives, not drowning in paperwork. This guide breaks down the essential financial pillars for the modern medical locum.

Choosing the Right Structure

The most common question we get is, "How do I actually get paid?" While most start as a Sole Trader because it’s fast and free, it often becomes a major roadblock.

Feature	Sole Trader (ABN)	Proprietary Limited (Company)
Setup Cost	Free / Very Low	Higher initial investment (ASIC fees, etc.)
Complexity	Simple	Requires corporate tax returns & ASIC compliance
Market Access	Limited. Many hospitals/agencies require a company.	The "Key": Opens doors to all major hospitals & agencies.
Legal Protection	Personal liability	"Corporate Veil" protection

The Verdict: While a Sole Trader ABN is fine for a few hours, most major hospitals and recruitment agencies mandate a Company structure. They require that corporate veil for insurance and liability reasons. If you stay as a sole trader, you may be effectively locking yourself out of the best-paying shifts.

Dismantling the "PSI" Myths

This is where "Lunchroom Lawyers", well-meaning colleagues in the hospital break room can get you into real trouble. Most medical income is considered Personal Services Income (PSI) because it is generated primarily by your personal skills and expertise.

The 80% Rule Myth

You might hear: "If less than 80% of your money comes from one hospital, you can pay the lower 25% company tax rate." This is dangerously incomplete. Passing the "80% Rule" is only the first hurdle. To be treated as a business (and not just an individual employee in a company suit), you must also pass a second test, such as the Unrelated Clients Test.

The Trap: To pass this, you must offer your services to the public at large (advertising, a website, a LinkedIn business profile). Simply accepting shifts from a recruitment agency often fails this test because the agency is finding the clients, not you.

The Part 4A Warning

Even if you technically pass the PSI tests, the ATO uses Part 4A (General Anti-Avoidance Rules) to strike down structures where the dominant purpose is simply to split income with a spouse or retain profits in a company to avoid high personal tax rates.

A Cautionary Tale: "Dr. Dave"

Dr. Dave was a locum who set up a company. He technically passed the 80% rule, so he paid himself a small salary and left the bulk of the profit in the company. He then paid dividends to his non-working spouse and sent money to retired parents overseas.

The Result: The ATO argued the dominant purpose was tax avoidance. They stripped away the company structure for tax purposes, re-assessed all income at his personal top marginal rate, and applied massive penalties and interest across two years. It was a financial disaster.

Finding the "Hidden Value"

If the ATO taxes you at your marginal rate anyway due to PSI rules, why bother with a company? The value is in cash flow control:

• Superannuation Control: Because income hits your company first, you control when super is paid. You can keep that cash in your mortgage offset account for months, reducing your interest costs, before making the final contribution.

• GST Deferral: If you register for GST annually, you collect 10% on your invoices all year but don't pay it to the ATO until May the following year. This is essentially an interest-free loan sitting in your offset account.

• Spouse Vehicle Strategy: While you likely sacrifice an EV for yourself, a company structure makes it easier to bring a second vehicle (for a spouse) into the business if there is a legitimate business use.

Wealth Building & Debt Recycling

Doctors are experts in physiology, but few are taught the mechanics of Debt Recycling. This is a game-changer for high-income earners with a home mortgage.

Most people pay off their mortgage (non-deductible "bad debt") using after-tax income. Debt recycling allows you to convert that debt into tax-deductible "good debt."

The Process:

1. You use surplus locum cash to pay down your home loan.

2. You immediately "redraw" that same amount into a separate loan split.

3. You use that redrawn money specifically to invest (e.g., in ETFs or blue-chip shares).

4. The Result: The interest on that redrawn portion of the loan is now tax-deductible because the funds were used for investment purposes.

Over time, you "recycle" your expensive home debt into a tax-deductible investment portfolio without changing your total debt level.

Your Locum Financial Checklist:

1. Review Your Structure: Are you missing out on shifts by remaining a Sole Trader?

2. Audit the "80% Rule": Ensure you aren't just relying on shift count; check the Unrelated Clients Test.

3. Maximise Logbooks: If you travel between hospitals carrying equipment, a valid logbook is essential for vehicle claims.

4. Build Your Team: Don't guess at wealth creation. A specialist medical accountant and financial planner are your best investments.

Click here to book a consultation with our team.

Disclaimer: The information and strategies shared in this article 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 personalised advice tailored to your specific individual or business needs, we always recommend consulting with a qualified professional at Aevum Accounting.