Bookkeeping for Optometrists in Melbourne

Two Businesses, One Practice — Two Different Bookkeeping Requirements

A Melbourne optometry practice is simultaneously a registered Medicare provider and a retail optical dispensary. The eye examination side operates under Medicare rules — bulk billing or private billing, GST-free clinical services, scheduled fee structures and claims processed through Medicare's online systems. The dispensing side operates like any specialty retailer — taxable supply of goods, supplier invoices, frame inventory, private health fund rebates and optical lab costs as cost of goods sold.

These two parts of the practice have almost nothing in common from a bookkeeping perspective. But in the vast majority of optometry practices in Melbourne, they are set up identically in Xero — one income account, all revenue coded the same way, no inventory management, no distinction between clinical and dispensing margins. The result is a practice that can't see which part of its business is profitable, can't produce an accurate BAS, and can't make pricing decisions based on real data.

Medicare: Bulk Billing vs Private Billing

When an optometrist bulk bills, they accept the Medicare scheduled fee as full payment. Medicare pays the practice directly — typically within a few days of the claim being submitted through ECLIPSE or the Medicare online claiming system — and the patient pays nothing. This income is a GST-free health service supply.

When a patient is billed privately, the practice charges its own fee (above the scheduled amount), the patient pays the full amount, and then claims the Medicare rebate back themselves. The practice receives only the patient payment — no separate Medicare payment arrives. The full amount is still a GST-free health service supply, but the revenue recognition and cash flow are different.

Practices that mix bulk bill and private billing patients need to track both correctly. Confusing bulk bill income (received from Medicare weeks after the service) with private billing income (received from the patient on the day) creates cash flow confusion and makes the Medicare reconciliation unreliable.

GST on Optical Dispensing: Frames, Lenses and Contact Lenses Are Taxable

This is the point where most generalist bookkeepers get optometry bookkeeping wrong. Unlike the clinical eye examination, the supply of optical goods — spectacle frames, prescription lenses, contact lenses, contact lens solutions and optical accessories — is a taxable supply subject to GST at 10%. There is no health services exemption that extends to goods.

For a busy Melbourne optical practice, dispensing revenue can represent 60–70% of total revenue. Applying GST-free treatment to that income because "it's a health practice" is a significant BAS understatement. Conversely, a practice that applies GST to all its income — including bulk-billed eye exams — is overcharging patients on clinical services. Neither error is trivial at the volumes a full-service practice generates.

The correct structure tracks clinical income and dispensing income in separate accounts in Xero, with the appropriate GST code applied to each. The BAS then correctly reports GST-free sales for clinical services and taxable sales for dispensing, and the GST payable figure reflects what the practice actually owes.

Frame Inventory: Asset, Not Expense

Frame stock sits in a display in the practice until a patient selects a frame for their prescription. Until that point, the frames are inventory — an asset — not an expense. A practice that expenses frames at the point of purchase recognises the cost in the period of the supplier invoice, not the period when the frame is dispensed. For a practice holding $40,000 to $80,000 of frame stock, this distorts the monthly P&L significantly — overstating costs in purchasing months and understating them in high-dispensing months.

Correct inventory management records frame purchases as stock on hand, transfers the cost to cost of goods sold when the frame is dispensed, and reconciles the stock value against an annual (or more frequent) physical stocktake. This allows the practice to also identify slow-moving or obsolete stock — frames that have been in the display for 18 months are a working capital cost that needs to be managed, not hidden in an averaged-out expense line.

Private Health Fund Rebates on Optical Items

Most private health funds provide optical benefits — a capped annual benefit for frames, lenses and contact lenses. These rebates are processed through HICAPS at the point of dispensing, with the patient paying the gap and the fund settling the rebate to the practice in batch payments. The same reconciliation challenges that apply to HICAPS in dental and allied health practices apply equally here: batch amounts don't match individual dispensing invoices, multiple funds settle on different cycles, and unreconciled batches produce phantom debtors and distorted revenue figures.

Optical Lab Costs as Cost of Goods

Prescription lenses are typically supplied by an optical laboratory — the practice orders lenses cut to the patient's prescription and the lab invoices the practice. Like dental lab fees, these are a direct cost of a specific dispensing transaction. Recording them as general operating expenses makes it impossible to see the true margin on lens dispensing. In Xero, optical lab invoices should be coded to a cost of goods sold account matched to the dispensing revenue they relate to, allowing the practice to see its gross margin on dispensing versus clinical services separately.