Should a Doctor Operate Through a Company or Trust in NZ?

It is a question we hear regularly from doctors in Canterbury: "Should I set up a company or trust to reduce my tax?"

The honest answer is: sometimes yes, sometimes no — and the wrong structure can create compliance costs and IRD scrutiny without delivering the expected tax savings.

Here is a clear analysis of the options, the rules, and when each structure makes sense.

Doctors are typically high earners. A GP principal, specialist, or busy locum can easily earn $200,000–$500,000 or more per year. At those income levels, the top personal tax rate of 39% applies to a significant portion of income.

The company tax rate is 28%. A trust can distribute income to beneficiaries at lower tax rates. The potential saving looks attractive — but the rules limit when these structures actually work.

You form a company, which contracts with hospitals, practices, or agencies for your medical services. The company receives the fees, pays you a salary, and retains any remaining profit at the 28% company rate.

Here is the critical issue: IRD has rules specifically designed to prevent individuals from using companies to avoid personal tax on what is essentially their own labour.

The personal services attribution rules apply when:

1. 80% or more of the company's income comes from one source (one hospital, one practice, one agency), and
2. The company's income is substantially the result of your personal services

If these conditions are met, the company's income is attributed back to you personally — taxed at your personal rate, not the company rate. The company structure provides no tax benefit.

What this means for doctors:

• If you work exclusively or predominantly for one DHB/Te Whatu Ora hospital or one practice, the attribution rules will likely apply
• If you work across multiple hospitals, practices, and agencies — with no single source exceeding 80% of income — the attribution rules may not apply, and the company structure can provide a genuine tax benefit

A company structure can be effective when:

• You genuinely work across multiple income sources (no single source > 80%)
• You have a practice with other doctors or staff — the company has substance beyond your personal services
• You want to retain earnings in the company for investment or future use
• You are building a practice that has value beyond your own labour (goodwill, systems, staff)

Operating through a company adds compliance costs:

• Annual company return ($45 filing fee)
• Company income tax return (more complex than a personal return)
• Payroll administration for your salary
• Potentially higher accounting fees

For a doctor earning $250,000 with a single income source, these costs may exceed any tax saving — particularly if the attribution rules apply.

A family trust holds your business interests (or the shares in your company). The trust can distribute income to beneficiaries — your spouse, adult children, or other family members — who may be on lower tax rates.

A trust can be effective when:

• Your spouse or adult children have low or no income and can receive distributions at lower tax rates
• You want to protect assets from creditors (trusts provide some asset protection)
• You are planning for estate purposes — trusts can simplify the transfer of wealth to the next generation
• You have investment assets (rental properties, shares) that can be held in the trust

• Trust income distributed to beneficiaries under 16 is taxed at 39% (the trustee rate) — so distributions to minor children do not provide a tax benefit
• Distributions to adult beneficiaries must be genuine — IRD scrutinises arrangements where distributions are made to family members who have no real involvement in the business
• The personal services attribution rules can apply to trusts as well as companies
• Trusts have their own compliance costs — trust returns, trustee obligations, and potentially higher accounting fees

From 1 April 2024, the trustee tax rate increased to 39% — matching the top personal rate. This significantly reduced the tax advantage of retaining income in a trust. Trusts are now primarily useful for income splitting (distributing to lower-rate beneficiaries) and asset protection, rather than for retaining income at a lower rate.

For many doctors — particularly those with a single primary income source — staying as a sole trader is the most practical option. The compliance is simpler, the costs are lower, and the tax outcome may not be materially different once the attribution rules are applied.

The focus then shifts to maximising legitimate deductions (professional fees, CME, home office, vehicle) and managing provisional tax efficiently.

There is no universal answer. The right structure for a Christchurch GP principal with a busy practice and multiple income streams is different from the right structure for a hospital specialist employed by Te Whatu Ora.

Key factors to consider:

Before setting up a company or trust, get a proper analysis done. This should include:

1. Modelling the tax saving — what is the actual dollar benefit after compliance costs?
2. Assessing the attribution rules — do they apply to your income sources?
3. Reviewing your income profile — is it likely to change in the next few years?
4. Understanding the compliance obligations — are you prepared to meet them?

A restructure that saves $5,000 in tax but costs $3,000 in additional accounting fees and creates ongoing administrative burden may not be worth it. A restructure that saves $30,000 per year almost certainly is.

Structuring decisions for medical professionals require specialist knowledge — of both the tax rules and the practical realities of how doctors earn income in New Zealand.

Contact Eastmure & Associates to discuss your situation. We work with doctors, specialists, and other medical professionals across Canterbury and can model the right structure for your specific income profile and goals.