While Australia is well-known for its stunning landscape, vibrant cities and high quality of life, there’s another thing that people know it for: the Australian Tax system. The tax system of this nation is considered to have its complexities and relatively high tax rates.
But before you get discouraged by the intricacies of taxation, let’s explore legal and ethical strategies to help you pay less tax in Australia. Whether you’re a business owner, a wage earner, or a savvy investor, there are ways to optimise your tax liability and keep more of your hard-earned money.
So, let us pay attention to some of the ways that can actually help you pay less tax.
Salary sacrificing or salary packaging
One way to save tax in Australia is through salary sacrifice. It is also known as “salary packaging”. In salary sacrifice, you, as a taxpayer, put a part of your pre-tax income towards a benefit before you’re taxed.
Salary sacrifice can be used to pay for Super, insurance, mortgage, rent payments, computer, a new car and more. Such benefits are called fringe benefits, and they can help you save thousands of dollars a year in tax. How? By reducing your taxable income, which results in you paying less tax in Australia.
However, there are limits on what can be salary packaged or salary sacrificed. Along with this, FBT or fringe benefits tax will also impact the kind of items or benefits your workplace is willing to offer.
Suppose your employer is offering to salary sacrifice a car as a novated lease. This is a great way to access a new car and simultaneously reduce taxable income. The agreement will be between you, your employer or finance.
You can also consider salary sacrificing your superannuation as well.
Claim every deduction
One way to reduce your taxable income is to claim the money you spent on earning income.
You should ensure that you declare all deductions to pay less tax in Australia. The deductions that seem insignificant or too small to be claimed can add up to a huge amount at the end of the financial year.
There can be a lot of confusion about whether you can claim a certain item or expense as a work-related tax deduction or not. So, in this case, it is better to keep the receipt of the expense, and when it’s time to file, ask your tax agent about it.
Rather than throwing the receipt and not being able to claim an eligible tax deduction, it is better to hang on to it.
Keep Accurate tax records
The Australian Taxation Office can ask questions about the tax deductions, and if they do, you will need to provide the receipts for tax deduction claims.
You will be surprised to know how many Australians do not claim tax deductions because of a lack of proper record-keeping.
Record-keeping does not have to be complicated. You only have to be prepared. Spending 10 minutes a week will be enough to maintain up-to-date and accurate tax records.
With the right tax records, you will save so much time looking for everything at the end of the financial year. The best part is that you will be able to pay less tax with all the eligible tax deductions.
Pay less tax with the donation
If you are feeling charitable but also want to keep your taxable income low, donations are a smart way.
Every donation made over $2 is tax deductible, but it needs to be registered charity. When the tax time comes, all you have to do is add up all your charitable receipts and put the data into the section named “charity donations” in your tax return.
It is worth noting that you will not receive donations via a tax refund. However, the amount is reduced from the total taxable income.
Add to your or your spouse’s Super
Another way to save tax is contributing to your super fund (or your spouse’s Super). The tax rate applied to concessional super contributions is 15% (once deposited into a super fund).
A lot of people prefer this, rather than being taxed at the marginal tax rate that can go as 45% for high-income earners.
But what are the different kinds of concessional contributions that can be made? The following concessional contributions can be made in order to lower your taxes:
- Personal deductible contributions
- Salary sacrificing
Usually, salary sacrifice is on top of the superannuation guarantee minimum percentage payments an employer has to contribute as obliged by law. You must keep one thing in mind: salary sacrificing is not something your employer is obliged to offer, unlike the employee super guarantee.
Self-employed or unsupported taxpayers can also make contributions to their Super and, thus, claim a full tax deduction.
Get yourself private health insurance
Getting private health insurance is not something that will work for everybody.
If you are earning above $90,000 in a year as a single person or above $180,000 as a family and you do not have private health insurance, you will be subject to a Medicare levy surcharge. The Medicare levy surcharge rate will be based on your total income, and it may be 1%, 1.25% or 1.5%.
Having private health insurance will exempt you from paying this surcharge. Along with this, basic private healthcare plans usually cost less than the 1% Medicare levy surcharge on your gross income.
However, a lot of people might not even consider it worthwhile. You will have to take your medical history and needs into account as well. So, please consider your circumstances and decide if this would be the right decision for you.
Prepaying some income-related expenses can help you reduce your taxable income. Paying such expenses in advance might reduce the taxable income by moving the deductions forward to this financial year. As a result, you will get a higher tax refund.
However, the prepaid expenses either have to be less than $1,000 or at least meet the 12-month rule. As per the 12-month rule, you can claim a deduction as a prepaid expense, given that the services stop in the next financial year and do not exceed 12 months.
Minimise Capital Gains
A significant asset you sell in a financial year, like property or shares, is subject to CGT (Capital Gains Tax). Capital gains taxes must be paid in the same year they are realised. However, capital losses can be carried forward.
When the investment has been held for at least 12 months, you can avail of the benefit of a 50% CGT discount. Prepaying deductible interest can help you decrease the tax payable within a financial year.
You have the option to prepay expenses on your investments up to 12 months in advance, such as interest on investment loans or management fees and claims.
Meet the deadlines
Most taxpayers decide to register with a tax agent, which lets them lodge their tax return as late as May of the following financial year. However, those who aren’t registered with an agent must lodge all of their return by 31 October.
If you meet all the deadlines set by the ATO, you can avoid conflicts and save yourself from penalties. If you fail to do the same, you will be liable to multiple fines and penalties.
Mortgage offset account
Have you bought a house recently and have a home loan? Then it may also help you save tax in Australia.
You can pay money into the mortgage offset account, and as a result, you get to offset your non-deductible interest on the home loan.
By this, you do not need to pay interest on the whole amount of the home loan. Instead, you are charged interest solely on the loan, subtracting the money in the account.
If you wish to learn to do this, you should reach out to a professional, or the bank might also assist you in setting this arrangement up.
Take advantage of tax offsets
Tax offsets and tax rebates are also there to help reduce the taxable income of an individual. As long as you meet the eligibility requirements, you can make use of offsets. Tax offsets can reduce the tax bill of an individual to zero, but you can’t get a refund through these.
Reach out to a tax agent
An experienced and professional tax agent can help you save a lot of time since they have the appropriate knowledge and industry expertise on taxes and refunds.
Hiring a tax agent not only makes the whole tax process simpler for you, but you can get the largest tax refund. On top of that, you will stay compliant with the rules and regulations set by the ATO.
Since you can claim the tax agent fee back on tax, why would you not want to maximise your money? Reach out to Clear Tax Accountants today to learn how to save tax in Australia.
Tax habits that may get you into trouble
There are certain tax habits that may end up getting you in trouble with the ATO. Let’s highlight those so that you can avoid them.
- Maximising private expenses with business expenses
- Claiming deductions that you never paid for
- Investing now and no returns until later years
- Excessively huge deductions or tax offsets compared to investment income
- Complicated financing arrangements that have no obvious commercial purpose
- Creating a loan that might never have to be repaid
If you are looking for a professional tax accountant who can help you with your tax matters, contact Clear Tax Accountants today.
Disclaimer: The information on this website is for general purposes only and should not be relied upon for making legal or other decisions. The advice provided in this article is general in nature and is not subject to the personal financial situation and needs of any individual. Clear Tax tries to keep the information accurate and up-to-date; however, you should bear in mind with changing circumstances, the accuracy and reliability of the information will not necessarily remain the same. The information is by no means a substitute for financial advice.