One of the centrepieces of structuring a business is designing efficient tax structures tailored to its unique circumstances.
In the case of pharmacy businesses, this becomes important due to the unique interactions with Pharmacy Council financial interest regulations, which limit otherwise allowable practices for managing profit outcomes within entities.
Tax and legal considerations will be explored at Pharmacy Connect 2024 in Sydney on Friday 6 September, with insights provided by Meridian Lawyers’ Principal Georgina Odell and 542 Partners’ Director Stuart Brandman.
Following is a snapshot of the key factors pharmacists need to consider when structuring their business.
1. Take pharmacy regulation requirements into account
The requirement to comply with Pharmacy Council regulations means the options for efficiently managing tax are less wide and varied, and require more intricate knowledge and expertise especially when considering the governance documents surrounding the arrangements. A good team of accountants and lawyers can greatly assist in maximising the options available to you.
2. Carefully consider tax structures
A key consideration for tax structuring is entity type. The allowable structures for pharmacies and pharmacy holdings vary between states and territories. Most allow for corporate entities (companies); some allow for trusts to be intertwined, but limit the available beneficiaries under the trust deed. For companies, there are generally revisions required to a standard constitution to satisfy compliance with Schedule 5F of the National Law.
What does this mean in practice?
The structure used is a key factor in determining preliminary tax outcomes. For example, corporate structures have become increasingly effective, especially since the introduction of the small business entity tax rate of 25%. Ensuring that owners are only taxed on profits that are drawn from the company means that the company is efficiently managing tax while, in many cases, repurposing profit distributions to pay off pharmacy debt.
3. Ensure service entity structures are compliant
Service entity structures are also quite common and have some attractive tax outcomes. This is particularly the case when complying with the Pharmacy Council provisions, as elements of the service entity structure sit outside the bounds of financial interest regulations.
Again, expert legal advice is required to ensure service entity structures are compliant with both Pharmacy Council regulations and Australian Tax Law. When correctly implemented, the profit generated by the group is taxed within entities that are not subject to financial interest regulations. Therefore, profit may potentially be distributed to non-pharmacist family members or entities.
4. Plan ahead for exiting a pharmacy business
One final consideration is the tax associated with any exit events such as the internal sale of a share or interest, or the external sale of a pharmacy. The structure that a pharmacy owner operates within (or the operational structure of the pharmacy in which you have an interest) can have significant impacts on the tax outcomes.
Small Business Capital Gains Tax Concessions can be very generous in reducing the tax burden associated with exit. However, these benefits can be undone by poor structuring decisions and insufficient planning around exits and taxation of capital proceeds.
Conclusion
In summary, the tax issues associated with pharmacy ownership, structure and exit can be complicated and require expertise and a good partnership between an accountant and lawyer.
Getting the set up and structure of entities, arrangements, and agreements in place is critical to achieving the most tax efficient outcomes. This must be done while maintaining compliance and addressing other key factors such as legal protection, operational efficiency and succession planning.
This article was written by Principal Georgina Odell of Meridian Lawyers and Director Stuart Brandman of 542 Partners.
Interested in attending Pharmacy Connect 2024?
Georgina and Stuart will be presenting their session: Starting & Finishing Strong – structuring your pharmacy business for financial, tax and legal success in Sydney on Friday 6 September 2024. Click here to learn more.
Disclaimer: This information is current as of August 2024. This article does not constitute legal advice and does not give rise to any solicitor/client relationship between Meridian Lawyers and the reader. Professional legal advice should be sought before acting or relying upon the content of this article.
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