Very rarely do we consider the end date of a business when we are starting a new business. That time when the business is no longer yours and now belongs to someone else. Starting with the end in mind should be part of your game plan.
Did you know that with the right planning and structure in place, you could sell your dental practice and pay little or no tax on the proceeds of the sale?
Getting the structure of your dental business right from the start will give you choice and put you in a better position when managing not only the tax implications when it’s time to say goodbye to your business but also the ongoing (annual) taxation imposts.
Choosing the Right Structure
There is no one size fits all approach to establishing the right business structure for you when getting started. The key is identifying the appropriate structure to suit the commercial and your personal requirements.
Our key principles and considerations are:
- KISS: Keep the structure as simple as possible to accommodate the needs of the business participants and their desired outcomes.
- Understanding: Our clients should know and understand their structure, its reasons, and how it works.
- Asset protection: It is essential that if valuable assets are being used or generated within or outside the business, these assets should be segregated and protected.
- Retention of Profits: Using related entities and/or holding companies can help retain and protect retained profits from trading activities. These retained profits should be optimally paid to the business owners or used to fund the business.
In Australia, there are four main types of structures that you can consider for your situation. Whilst there are several hybrids or different subversions of these structures, these are the four fundamental classes of structure that exist:
- Sole Trader
- Partnership
- Company
- Trust
Meet Dr Swan – Setting up the right structure.
Dr Swan is married and 40 years of age and is a qualified dentist working as an employee of Incisor Pty Ltd for several years. His wife has a job but is currently on unpaid maternity leave and may not return to her former employer. All their private assets are held jointly, including a family home of $800,000 and a share portfolio of $150,000.
Dr Swan has been offered to purchase the dental practice from the current owner, who is looking to move interstate for $500,000, including plant and equipment. Dr Swan intends to own the practice for a minimum of 15 years and hopes to grow its value.
Key things to note:
- The structure must protect the family assets, including the house, and if possible, shares
- Equity in their property can be accessed to purchase the business
- Looking for tax-efficient options in respect of profits and capital
- Initial up-front investment into the setup will result in some one-off costs
- Initially one administrative employee but aim to grow staff numbers including a locum dentist over time
- Consider the opportunity to purchase the business property in future years
Choosing the right structure from the start will allow Dr Swan and his wife to maximise opportunities and minimize the tax implications as they move forward.
Find out the outcome and what’s next for Dr Swan and his wife, take advantage of our Discovery Consultation here:
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The article was written by Simon Prowse Director of Navwealth Financial Group
Navwealth Financial Group Pty Limited ABN 71 064 594 350, trading as Navwealth is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327 (AMPFP) Australian Financial Services Licence 232706 and Australian Credit Licence 232706.
