Terry McMasterMcMasters’ Accountants, Solicitors and Financial

Planners www.mcmasters.com.au

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

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

Temporary access to www.mcmasters.com.au through user name mackay123 and password mackay123

Everything in presentation is linked back to detailed manuals explanations and case studies on www.mcmasters.com.au

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 terry@mcmasters.com.au 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

1. Practice structures2. The main tax planning issues3. Superannuation planning4. Issues for rural doctors5. Inter-generational financial

planning6. Issues for foreign trained

doctors7. Retirement planning for

doctors8. Doctors’ (commission free) risk

insurances9. Doctors’ loans/finance profiles10. Estate planning for doctors

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 StructuresDollar Notes 15th January 2006: The use of

practice trusts by large practicesDollar Notes 26th April 2006: Practice trusts

for personal services income practices

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

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 ReferencesThe McMasters’ Way: Tax PlanningTax Planning for Doctors and DentistsThe McMasters’ Way: Superannuation Planningwww.mcmasterssuper.com.au

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:www.mcmasterssuper.com.auThe McMasters’ Way SuperannuationThe Doctors’ Guide to SMSFsThe Doctors’ Guide to Simple Super

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

ReferencesThe McMasters’ Way: Superannuation Planningwww.mcmasters.com.au

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

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

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

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)

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

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

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

ReferencesMcMasters’ Intergenerational Financial PlanningMcMasters’ Financial Planning for Foreign Trained Doctors

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

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

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

Start early and never stop

Client’s current projected work pattern

Our preferred projected work pattern

Work intensity

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

Hard for solo doctors or others with fixed costs.

Profit falls more than proportionately to hours

BEP

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

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

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:

Income Tax

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) $15,000

Nil

Deductible business interest

$10,000

Nil

Deductible overseas travel

$10,000

Nil

Government co-contribution

Nil ($3,000)

Unrealised capital gain: home

$30,000

Nil

Unrealised capital gain: surgery

$20,000

Nil

Investment income in SMSF (tax free)

$50,000

Nil

Total $300,000

$19,950 or 6.7%

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

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

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