Business accounting for psychiatrists

Psychiatrists operating small to medium-sized health clinics or working as independent contractors specialise in patient care and mental health management. However, ensuring the financial health of your business is just as critical. The complex matrix of taxation, accreditation, and compliance with Australian Taxation Office (ATO) standards can significantly impact your bottom line. This is why a well-structured accounting foundation guarantees compliance and ensures you maximise your returns while maintaining the professional standards required in your field.

Accreditation and licensing are fundamental to maintaining credibility and trust in the healthcare sector. Whether you run a practice or operate independently, being properly licensed ensures you meet the professional and ethical standards required by governing bodies such as.

The Medical Board of Australia (MBA) – Registration with the Australian Health Practitioner Regulation Agency (AHPRA) is mandatory for all psychiatrists practising in Australia.

Royal Australian and New Zealand College of Psychiatrists (RANZCP) – Membership and fellowship with RANZCP validate your qualifications and ability to provide specialised psychiatric care.

Medicare provider registration—For those offering Medicare-rebatable services, appropriate registration is crucial to ensure patients receive benefits and that you remain compliant with health funding frameworks.

Maintaining up-to-date accreditation is not just a regulatory requirement—it affects your taxation obligations. For example, certain professional memberships, training, and ongoing education costs can be tax-deductible, reducing your overall taxable income.

A compliant and durable accounting system is essential for compliance and financial efficiency. The ATO has strict requirements regarding tax reporting, deductible expenses, and financial record-keeping, making it vital to establish sound accounting practices from the outset. A significant key is how you structure your business for maximum tax efficiency. Typically, there are two options.

Sole trader
Most straightforward and least expensive to implement.
You (the psychologist) are liable for debts or legal issues.
Profit is tax at your individual marginal tax rate.
Accounting and reporting requirements are simpler.

Company
Offers limited liability, protecting personal assets from business debts (excluding cases of director negligence).
It may provide tax advantages. The company tax rate can be lower than the highest personal tax rate. Be aware of personal service income rules.
More complex to set up and maintain. Higher administrative and reporting obligations.
Allows for greater expansion possibilities and setting the right scaffolding for the future.

Working collaboratively with your business accountant to select and establish the most appropriate business structure ensures compliance with tax laws while optimising your financial position.

As a psychologist, you can work for other practices as a business.  However, there are key considerations when making these arrangements.

If you are classed as an employee:
The practice must withhold PAYG tax and make superannuation contributions for you.
The practice exercises control over when, how, and where work is performed.
Employees generally access entitlements like annual leave and sick leave, among others.

If you are classed as a contractor:
You typically issue invoices for work performed and pay your tax and superannuation. (There may be an alternative arrangement in place depending on the terms of the contract)
Greater autonomy on how work is performed.
You must be generally operating an independent business. (Avoid “sham contracting”)

In most scenarios, you will run your business within an existing practice. This is the more common and preferred method of engaging contractors. In this circumstance, you will be invoiced for renting the facilities the practice provides. When this arrangement is required, it does involve a more complex contract and accounting setup.  Discuss this with your business accountant before entering into this arrangement.

If you are contracting professionals to your practice, it is critical that you correctly classify psychologists to avoid penalties and back payments for superannuation and leave entitlements.

When employing or contracting additional psychologists you must ensure you have the following obligations covered.
Liability and insurance.
As an employer or principal contractor, you must ensure adequate professional indemnity and public liability insurance to cover staff and contractors. It is also important to clarify supervision responsibilities and professional standards.
Payroll and superannuation obligations.
For employees, you are required to withhold PAYG tax and pay superannuation at the current compulsory rate. (11% in FY 2023-2024)

Check if superannuation is required for contractors who fall within specific definitions. For example, they’re principally contracted for labour.

WorkCover
In most Australian states and territories, registration for workers’ compensation is compulsory when you employ staff.
When engaging contractors be aware of the potential obligations under the state’s legislation in which you operate.

Personal service income (PSI)
Personal service income (PSI) refers to income earned primarily from an individual’s personal skills or efforts rather than from a business structure.
If most of your income is derived from your personal skills, knowledge, or effort – you personally deliver therapy sessions – you may be receiving personal service income. The ATO has specific tests to determine if income is classed as PSI.
PSI can limit the tax benefit of operating through a company or trust. They may examine the structure and attribute income to the individual. If you wish to claim deductions or retain income within an entity, you must ensure you meet the criteria for a personal service business (PSB).

Working as a Psychiatrist is a demanding and rewarding profession. Like any enterprise, Psychiatrists incur various business-related expenses that can be legally deducted to lower taxable income.

Deductible expenses include:

• Professional memberships and accreditation fees
• Medical malpractice insurance
• Office rent and utilities for private clinics
• Practice management software and electronic health record (EHR) systems
• Work-related training, seminars, and conferences
• Medical equipment, computers, and office supplies

Correctly categorising these expenses ensures compliance with ATO regulations while minimising your tax burden.

The ATO mandates strict record-keeping practices for medical professionals. Psychiatric practices must maintain accurate financial records, including:

• Detailed invoices and receipts for expenses and income
• PAYG withholding records for staff wages
• Superannuation contributions for employees and self-employed practitioners
• Business Activity Statements (BAS) for GST-registered practices

Failure to comply with ATO requirements can result in audits, penalties, and interest charges. It is highly recommended that you engage a specialised business accountant to help ensure compliance.

Establishing a psychology practice demands careful planning. The practice’s financial integrity will be affected by its business structure, employment or contracting arrangements, GST obligations, and potential PSI rules.

An experienced business tax specialist understands psychiatrists’ specific financial challenges and provides strategic tax planning to minimise liabilities while maximising available deductions. At North Advisory, we can also offer bookkeeping support to ensure accurate financial tracking and reporting and ATO compliance guidance, ensuring timely lodgement of tax returns and BAS.

By establishing a durable accounting foundation, psychiatrists safeguard their professional standing, maximise tax benefits, and ensure compliance with ATO regulations. Seeking guidance from a business tax specialist lets you focus on patient care, knowing that your financial health is in expert hands.

North Advisory, located on Sydney’s Nothern Beaches, is ideally positioned to assist you and your business with expert financial management and taxation planning and implementing financial strategies tailored to your needs. We specialise in the healthcare sector across a diverse range of disciplines and have a financial team with expertise at every touchpoint.

Marius Fourie, Director and Accountant, is a leading business accountant and advisor. He has helped many Australians operating in the healthcare sector maximise their financial position.

Contact Marius today and secure your business’s financial future.