Bookkeeping and Tax for Paediatricians in Victoria

How a Paediatric Specialist Practice Generates Income

A Victorian paediatrician's income comes from several sources, each with different bookkeeping and GST implications. Understanding these income streams is the foundation of accurate accounts:

• Medicare bulk billing: For eligible patients (children under 16 in most cases), the paediatrician bulk bills Medicare directly. Medicare pays the scheduled fee in full and the patient pays nothing. These are GST-free health service payments.
• Private billing with gap: The paediatrician bills at a rate above the Medicare schedule fee. Medicare pays the schedule fee (or 85% for out-of-hospital services) and the patient pays the gap directly. Both the Medicare component and the patient gap are GST-free.
• Hospital outpatient clinics: Some paediatricians work sessions at public or private hospitals as visiting medical officers (VMOs). The hospital pays a sessional fee or per-visit rate. These payments are usually GST-free.
• Telehealth: Since 2020, Medicare telehealth item numbers allow paediatricians to bill remotely. Telehealth income is treated the same as in-person consultation income for GST purposes.
• Medicolegal reports: Written reports for legal proceedings, insurance companies or WorkCover assessments are taxable supplies (10% GST applies).
• Research or teaching: University or hospital teaching payments may be taxable depending on the nature of the arrangement.

Income Types and Bookkeeping Treatment

The table below summarises how each paediatrician income type should be classified and recorded in Xero.

Medicare Bulk Billing Reconciliation in Xero

Medicare batch payments are one of the most misunderstood income items in medical practice bookkeeping. When Medicare pays a bulk billing claim, it does not pay individual claims as they are submitted. Instead, it accumulates approved claims and pays in batches, typically weekly or fortnightly. A single bank deposit from Medicare can cover 20 to 100 or more individual patient services across multiple days.

Without a reconciliation process, there is no way to confirm that all submitted claims were paid, that no claims were rejected (and need to be resubmitted or written off), or that the income reported in Xero matches the income recorded in the practice management system.

The reconciliation process works as follows:

1. At the end of each pay period, download the Medicare remittance advice from HPOS (Health Professional Online Services) or your practice management software
2. The remittance advice lists each approved claim, the patient, the MBS item number, the fee amount and the paid amount
3. Compare the total on the remittance advice to the Medicare bank deposit received
4. Identify any claims listed as rejected or pending on the remittance advice and action them (resubmit or write off)
5. In Xero, post the batch Medicare payment as GST-free income and reconcile it to the bank feed

Practices that skip this reconciliation and simply record the Medicare bank deposit as income will have no visibility over rejected claims, and may be understating income where Medicare has paid for services not yet matched in Xero.

Key Tax Deductions for Paediatricians

A Victorian paediatrician operating through their own practice entity can claim a range of deductions that reduce the taxable income of the practice. The table below summarises the most significant categories.

Practice Structure Options for Victorian Paediatricians

The entity structure of a paediatric specialist practice has significant implications for how income is taxed, how assets are protected, and how the practice can eventually be transitioned or sold. The most common structures in Victoria are:

• Sole trader: The simplest structure. All income is taxed at the specialist's personal marginal rate. No corporate tax rate access. Highest tax rate for high earners. Simplest to administer.
• Company (Pty Ltd): The specialist (or their company) operates the practice. A base rate entity company pays 25% corporate tax on retained profits. The specialist draws a salary from the company (which is a deduction for the company) and can control the timing of additional distributions. Access to company structure benefits including asset protection from the trading entity.
• Trust structure: A discretionary trust can distribute income to multiple beneficiaries, but medical income that constitutes personal services income (PSI) may not be split freely. PSI rules apply where 80% or more of income comes from one source or for the personal efforts of the individual. Many specialist practices are caught by the PSI rules and distributions are restricted.

The PSI rules are particularly relevant for paediatricians who work exclusively through a single hospital or health system. Where PSI applies, the income must be attributed to the individual and cannot be split to lower-income beneficiaries. Structure planning for specialist practices requires a registered tax agent with experience in medical professional businesses.

Equipment Depreciation for Paediatric Practices

Paediatric specialist rooms typically contain a smaller range of equipment than a surgical or procedure-based practice, but several items carry meaningful capital cost and must be correctly recorded as fixed assets in Xero. Common items include:

• Spirometry equipment (lung function testing): useful life approximately 10 years, 20% DV rate. Cost typically $5,000 to $15,000
• ECG machine: useful life approximately 8 to 10 years, 20 to 25% DV rate. Cost typically $3,000 to $10,000
• Examination couch (electric): useful life 10 years, 20% DV rate. Cost typically $5,000 to $12,000
• Otoscope and ophthalmoscope (diagnostic set): useful life 5 years, 40% DV rate. Cost typically $500 to $2,000 per unit
• Height/weight measurement equipment: useful life 10 years, 20% DV rate. Cost typically $500 to $3,000
• Practice computers and clinical software: useful life 4 years, 50% DV rate

Items below $20,000 per unit may be eligible for the instant asset write-off under the small business entity rules if the practice qualifies. Items purchased through asset finance (chattel mortgage) are still owned by the practice from day one and depreciated in full.

Telehealth and Post-COVID Bookkeeping for Paediatricians

Since 2020, telehealth consultations have become a permanent feature of paediatric specialist practice. Medicare telehealth item numbers for paediatricians allow consultations by video or telephone with eligible patients and carers. The bookkeeping treatment is straightforward: telehealth income is GST-free health service income, recorded and reconciled exactly as in-person consultation income is recorded.

Where a paediatrician conducts telehealth consultations from a home office, a proportion of home running costs (internet, power, potentially a home office depreciation claim) may be deductible. The ATO's fixed rate method or actual cost method can be used, but the deduction must be calculated and documented correctly. This is best done by a bookkeeper and accountant working together at year end to ensure the home office claim is accurate and supportable.

Watch: Bookkeeping and Tax for Paediatricians in Victoria

Frequently Asked Questions

Are paediatrician consultation fees GST-free?

Yes. Paediatric medical consultations by a registered medical practitioner are GST-free under Division 38-B of the GST Act. This applies whether the service is bulk-billed to Medicare, privately billed with a gap, or conducted via telehealth. Medicolegal reports are an exception and are taxable at 10% GST.

How do I reconcile Medicare bulk billing payments in Xero?

Download the Medicare remittance advice from HPOS for each payment period. Match the total approved amount to the bank deposit. Identify rejected or pending claims and action them. Post the batch payment as GST-free income in Xero and reconcile to the bank feed. Your bookkeeper should do this every payment cycle, not just at year end.

What structure should a paediatrician use for their practice?

Options include sole trader, company (Pty Ltd), or a trust structure. For high-income specialists, a company provides access to the 25% corporate tax rate on retained profits. Personal services income (PSI) rules limit income splitting. Structure design should be done with a registered tax agent.

What deductions can a paediatrician claim?

AHPRA registration, medical indemnity insurance, CPD costs, clinic room rental, equipment depreciation, professional society memberships, journals and subscriptions, mobile phone (work proportion), practice staff wages and super. All expenses must be incurred in producing assessable income and not be private in nature.