Choosing the right business structure is one of the most consequential decisions an AHPRA-registered locum makes when moving from employment into independent contracting. Whether you are a GP picking up extra shifts, a pharmacist contracting across multiple groups, a physiotherapist building a portfolio practice, or a nurse working across hospitals and aged care, the structure you operate under affects your tax position, your exposure to personal liability, your super contributions flexibility, and the compliance burden you carry every year. This article sets out the key characteristics of the three structures available to Australian healthcare contractors: sole trader, proprietary limited company (Pty Ltd), and discretionary trust. It is general information only and is not personal financial, legal or tax advice. Speak with a registered tax agent or accountant before making structure decisions.
Sole Trader: Simple, but All Tax Falls on You
A sole trader operates under their own ABN with no separate legal entity. You report all business income in your individual tax return and pay tax at marginal rates. For 2025-26, the top marginal rate is 47% (including the Medicare levy) for income above $190,000.
The advantages are simplicity and cost. Getting an ABN is free. There is no annual company review fee, no separate corporate tax return, and no complex trust deed to maintain. GST registration is required once your turnover reaches $75,000 in any twelve-month period, at which point you charge 10% GST on invoices and lodge BAS, typically quarterly.
Super is optional for sole traders. You are not an employee, so no one is paying the Super Guarantee (SG) on your behalf. SG sits at 12% for the 2025-26 financial year. As a sole trader you can make voluntary concessional contributions (pre-tax, including a personal deductible contribution) up to the $32,500 concessional cap for 2026-27. This is one of the most powerful tax levers available to you as a contractor, and one that is commonly underused.
The main limitation of the sole trader structure is unlimited personal liability. Business debts, negligence claims, and adverse judgements attach to you personally. For most clinical work this is mitigated by professional indemnity insurance, which AHPRA-registered practitioners are required to hold, but liability exposure beyond clinical risk (commercial disputes, employee claims if you engage support staff) sits entirely with the individual.
Proprietary Limited Company (Pty Ltd): Rate Certainty with Added Compliance
A Pty Ltd company is a separate legal entity. The company lodges its own tax return and pays the corporate tax rate, which is 25% for base rate entities with aggregated turnover under $50 million for 2025-26 (the general rate is 30%).
Incorporating costs $597 in ASIC registration fees for a standard proprietary company with share capital as of 2025-26, plus ongoing annual review fees. You will also need a tax agent, separate financial statements, and potentially an accountant familiar with the corporate structure. The compliance overhead is meaningfully higher than sole trader.
The key tax planning lever is director salary: the company can pay you a salary, on which the 12% SG applies (so the company must contribute super on that salary). The gap between the corporate rate and your marginal rate is only useful if profits are retained inside the company rather than distributed immediately, as any dividend you draw from the company is taxable at your marginal rate (subject to franking credit offsets).
Asset protection is the strongest argument for a Pty Ltd. The company's liabilities do not automatically attach to you personally, unless you have provided personal guarantees or the ATO pursues director penalty notices. For locums with significant personal assets, this separation has real value.
Discretionary (Family) Trust: Income Splitting with PSI Constraints
A discretionary trust allows the trustee (often a corporate trustee) to distribute income to beneficiaries in proportions chosen each year. In theory this enables income to be split across lower-income family members to reduce the overall tax payable. The trust itself does not pay income tax; the tax falls on beneficiaries at their marginal rates.
The compliance cost is comparable to or higher than a Pty Ltd. You need a trust deed, a corporate trustee (or individual trustee with succession risk), and trust tax returns. Setup costs from a solicitor or accountant typically run in the hundreds to low thousands of dollars.
The significant limitation for most healthcare locums is the Personal Services Income (PSI) rules.
PSI: The Rule That Reshapes Every Structure Decision
For AHPRA-registered locums, the PSI rules are central to structure planning. The ATO defines income as PSI when more than 50% of the amount earned under a contract is a reward for an individual's personal efforts or skills, rather than for the supply of goods, use of assets, or the work of employees.
For almost every clinical locum, income from shifts is PSI. You are being paid for your professional skill and effort. This matters enormously for structure because:
- If you operate through a Pty Ltd or trust and the income is PSI, the income must generally be attributed back to you unless the entity qualifies as a personal services business (PSB). PSB status requires passing one of four tests set by the ATO (results test, unrelated clients test, employment test, or business premises test). Passing the results test is the most common route for sole traders, but clinical locums who are engaged on an hours or sessions basis often have difficulty passing it.
- A company or trust that receives PSI and fails to qualify as a PSB must attribute the income to the individual who earned it, effectively stripping away the tax benefit of the structure.
- Certain deductions are also restricted when PSI rules apply, including rent or mortgage interest on a home office and payments to associates such as a spouse.
The practical implication: most locums earning primary clinical income from shifts work as sole traders, because the PSI rules mean a company or trust structure delivers limited benefit without PSB status, and adds compliance cost and ASIC oversight. A Pty Ltd may still make sense for asset protection, or where the contractor has enough non-PSI work to qualify as a PSB, but this requires professional advice specific to your circumstances.
How Sessional Helps
Whichever structure you choose, Sessional's earnings dashboard tracks income against your GST threshold in real time, alerts you when you are approaching the $75,000 registration trigger, and keeps your invoices and BAS data in one place. The super tracker logs your concessional contributions against the annual cap, so you can see exactly how much room remains before 30 June. If you are a sole trader using the ATO cents-per-km method (91 cents per km, capped at 5,000 km per vehicle for 2026-27), the cents-per-km tool calculates your deduction as you log shifts. See pricing to compare plans, or visit /help for setup guides.
Sources
- ATO - Business structures key tax obligations
- ATO - Company tax rates 2025-26
- ATO - Income that is PSI
- ATO - Personal services income overview
- ATO - Concessional contributions cap
- ATO - Super guarantee rate
- ATO - Registering for GST
- ATO - Attributed personal services income 2025
- ASIC - Register a company
- ASIC - Fees for commonly lodged documents
- business.gov.au - Tax differences between a sole trader and a company