27/02/2026
๐๐๐ซ๐ฏ๐ข๐๐ ๐๐ง๐ญ๐ข๐ญ๐ฒ ๐๐ซ๐ซ๐๐ง๐ ๐๐ฆ๐๐ง๐ญ
The Service Entity Arrangement has been in place for many years, dating back to ATO Income Tax Ruling IT 276, issued in 1978 following the Federal Court decision in the Phillips case.
The primary intention of a service entity is asset protection - separating operating risk from asset ownership within a business structure.
When deciding which structure (company or trust) to incorporate as a service entity for medical professionals, there are several key factors to consider. Below are three common scenarios:
๐๐๐๐ง๐๐ซ๐ข๐จ ๐ - ๐๐จ๐ฅ๐ ๐๐ซ๐๐๐ญ๐ข๐ญ๐ข๐จ๐ง๐๐ซ ๐ฐ๐ข๐ญ๐ก ๐ ๐๐ข๐ฌ๐๐ซ๐๐ญ๐ข๐จ๐ง๐๐ซ๐ฒ ๐๐ซ๐ฎ๐ฌ๐ญ
This is the most common arrangement.
The service entity operates through a discretionary trust, allowing net profits to be distributed flexibly to beneficiaries such as:
โข Spouse/partner
โข Adult children
โข Minor children (capped at $416 tax-free threshold)
โข Parents (including non-residents, subject to non-resident tax rates)
If there are excess profits not required for personal distribution, the trust may distribute to an investment company (commonly referred to as a โbucket companyโ) to cap tax at the corporate rate and retain funds for reinvestment. This structure provides flexibility in income streaming and strong asset protection.
๐๐๐๐ง๐๐ซ๐ข๐จ ๐ - ๐๐จ๐ฅ๐ ๐๐ซ๐๐๐ญ๐ข๐ญ๐ข๐จ๐ง๐๐ซ ๐ฐ๐ข๐ญ๐ก ๐๐ง ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ ๐๐จ๐ฆ๐ฉ๐๐ง๐ฒ
Under this arrangement, killing two birds with one stone, a company acts as both:
โข The service entity; and
โข The investment vehicle (e.g. investing in shares and ETFs), creating a potential โsnowball effectโ for long-term wealth accumulation.
If access to retained profits is required, the company can declare dividends. For flexibility in distributing those dividends, the shareholder of the company should ideally be a discretionary trust.
This structure is generally simpler but provides less distribution flexibility compared to a trust unless properly structured.
๐๐๐๐ง๐๐ซ๐ข๐จ ๐ - ๐๐ฎ๐ฅ๐ญ๐ข๐ฉ๐ฅ๐ ๐๐ซ๐๐๐ญ๐ข๐ญ๐ข๐จ๐ง๐๐ซ๐ฌ ๐ฐ๐ข๐ญ๐ก ๐ ๐๐ฒ๐๐ซ๐ข๐ ๐๐ซ๐ฎ๐ฌ๐ญ
A Hybrid Trust combines features of both a discretionary trust and a unit trust.
The advantage of a hybrid structure is:
โข Fixed entitlement for passive income (via units); and
โข Discretionary allocation of each practitionerโs service fee contributions, allowing profits to be distributed fairly and proportionately.
This structure can work well where multiple practitioners are contributing at different levels but still require fairness and flexibility.
Each structure has its own tax, asset protection, and commercial considerations. The appropriate choice depends on income levels, family circumstances, long-term investment plans, and whether there are single or multiple practitioners involved.
