reduce tax in Australia

8 ways to legally reduce tax in Australia 2023 | Maximise Tax Return

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Hey are you someone who pays more tax than they save for themselves? And you want to save tax but in legal ways then you are at right spot.

Today i am going to tell you 8 ways to legally pay less tax. So that you can save thousands of dollars per year with tax.

These tips could help you save a lot of money for this financial year and help you plan better for next year.

Salary Sacrifice

The first way to reduce tax is the salary sacrifice part of your pre-tax salary into your superannuation account. Now if this is the first time you’ve heard of salary sacrifice then it may seem complicated but trust me it’s actually quite simple once you understand.

How Salary Sacrifice Works?

When you ask your employer to make extra contributions into your super account from your pre-tax salary before you get paid, This allows you to reduce your taxable income and potentially save on taxes in Australia your employer must pay 10.5% of your salary into a super retirement account.

Please note that the super rate is going to increase by 0.5% every year until 2026.

Any extra super payments that you salary sacrifice are called concessional contributions. Which are taxed at 15% in comparison if the money was paid directly to you without salary sacrificing, You would have to pay your marginal tax rate which is usually much higher than 15%.

If you are going to use that money to invest in shares outside of super then you may as well consider investing inside super instead and saving on the tax and at first it may not be much but over the years the savings on tax will allow you to invest more with your compound over decades.

So have a chat with your payroll officer if you’re interested in salary sacrificing.

But please note that the downside is you can only access your super at preservation age which is currently 60 years old.

So if you do salary sacrifice make sure you’re okay with being in it for the long term.

We have a detailed article on this HOW MUCH CAN YOU SALARY SACRIFICE TO SUPER Go through this article your all doubts will be cleared.

Next way to reduce tax is to claim deductions for work related expenses this means you can claim deductions on certain work related items or expenses that you spend during the financial year to reduce your overall taxable income in Australia.

You can claim deductions on certain work-related expenses that will incur while performing your job it is important to note that to be eligible for deductions the expenses must meet a specific criteria and be directly related to your work.

Here are some common work-related expenses that you may be able to claim deductions on:-

Vehicle Expenses

If you use your personal vehicle for work related purposes you may be eligible to claim deductions for expenses such as fuel repair and maintenance registration and insurance.

However you generally cannot claim the cost of driving between your home and workplace but you can claim the cost of driving from your workplace to a client or work related destination.

Travel Expenses

If you need to travel for work related purposes you can claim deductions for expenses such as accommodation meals, Transportation, EG flights and taxis and incidental expenses the travel must be directly related to your job and you will need to record your expenses with receipts.

Home Office Expenses

If you have a dedicated area in your home use exclusively for work you may be eligible to claim deductions for home office expenses this can include a portion of your rent or mortgage interest utilities internet phone bills and depreciation of home office equipment like computers and Furniture.

You can claim deductions for self-education expenses directly related to your current employment or to maintain or improve your skills for your job this can include tuition fees, textbooks, stationery and travel expenses for attending educational courses or seminars.

Tools & Equipment

You can claim deductions for the cost of tools equipment and other work related assets that you purchase or repair as part of your employment you can even claim a deduction on laundry and dry cleaning expenses for your uniforms.

Other work-related expenses that may be eligible for deductions include professional certificate, patents and licenses work related phone calls work related subscriptions or Publications and expenses incurred for income protection insurance premiums there are a few more expenses you can claim.

Please note you can claim up to $300 without any written evidence or receipts but if you do go over $300 you will need some kind of proof to justify the deduction.

Capital Gains Tax Strategy

To reduce taxes to have a capital gains tax strategy I’m assuming you’re an investor or you’re thinking of investing in Australia.

When you sell your assets like stocks or real estate for a profit you must pay capital gains tax.

However there are a few strategies you can use to minimize the tax you pay here:-

There are three ways:-

Number 1

If you hold your assets for more than 12 months you will receive a capital gains tax discount this discount will produce the taxable portion of your capital gains by 50%.

So for example if you sell your shares for a profit of $500 you only have to pay tax on $250 if you waited more than 12 months to sell so that is a significant saving just by waiting.

Number 2

You can offset Capital losses against capital gains to reduce your overall tax liability.

So for example if you made $1000 profit on stock A and a $500 loss on Stock B you would only be subject to tax on $500 since the loss offset is part of the profit.

Also please note that if you don’t have enough gains to offset your losses you can carry over the credit to offset any future capital gains however you cannot use Capital losses to reduce your taxable income.

Number 3

Consider the timing of selling assets to strategically manage your capital gains.

So for example some investors sell their stocks that are lost right before July to lock in the losses for The Current financial year this is particularly useful if you also made some gains so they can offset each other.

So you might be thinking what’s stopping me from selling a stock at a loss on the 30th of June and buying a straight back the next day so you can get the tax benefit while this is called a wash sale and it’s illegal.

The ATO does not like investors buying and selling assets just for the tax benefits and if you try this they may audit you so please be careful.

Investment Property Deductions

The next way to reduce taxes to maximize deductions for Investment Properties Real Estate is a tax Haven for investors.

Because besides the obvious benefits of rental income and asset appreciation there are so many tax deductions you can claim.

So if you own an investment property ensure you claim all the eligible deductions this can include expenses related to Property Management fees, repairs and maintenance, interest on loans, insurance and Council rates.

Make sure you keep a detailed record of every receipt invoice and documents throughout the year so you can easily produce them when required.

Reducing tax of real estate in Australia can be achieved through various strategies however it’s important to note that tax laws and regulations can change so it’s crucial to consult with a tax professional or refer to the ATO for the most up-to-date information.

Here are some potential strategies to consider:-

Negative Gearing

Negative Gearing involves borrowing money to invest in property where the expenses EG mortgage interests or maintenance costs exceed the rental income.

The resulting net rental loss can be used to offset other taxable income reducing your overall tax liability however it’s important to carefully consider the financial implications and risks associated with negative gearing.

Capital Gain Tax Discount

Capital gains tax discount we’ve already mentioned this in the previous tip but if you hold your investment property for more than 12 months you may be eligible for the capital gains tax discount.

This allows you to reduce the taxable portion of any capital gains realized when selling the property by 50%.

Depreciation Deductions

Depreciation deductions you can claim depreciation deductions for the wear and tear of certain assets within the property such as appliances or fixtures so things like flooring, carpets, curtains, washing machines, fridges and Furniture.

Deductible Expenses

Deductible expenses ensure you claim all eligible expenses related to your investment property this can include Property Management fees, Insurance repairs and maintenance Council rates and interest on loans.

Yes you heard right you can actually borrow money and claim a deduction on the interest.

If it helps you create income again please keep detailed reports and receipts to support your claims.

And please remember while reducing tax is a legitimate goal it’s essential to comply with all the Australian tax laws and regulations.

If you do have a rental property I would strongly recommend speaking with a tax accountant who will be able to drop the best tax efficient strategy for you.

Small Business Concessions

The next way to reduce tax is to take advantage of small business concessions if you are a small business owner consider taking advantage of various tax concessions which you are entitled to this may include the following:-

Small Business Tax Offset

Small businesses with an annual turnover below a certain threshold can claim a tax offset which helps reduce their payable tax.

Instant Asset Write-Off

Small businesses can immediately deduct a cost of eligible assets such as equipment and vehicles up to a certain threshold rather than appreciating them over time.

The ATO has announced as part of the new budget that they are increasing the instant asset write-off threshold to $20000 so go check it out and see if you qualify.

Simplified Depreciation Rules

Small businesses can benefit from simplified depreciation rules allowing them to claim accelerated deductions for eligible assets.

Again go check out the ATO site if you would like to learn more if you have a small business or you’re thinking of starting a small business then I would recommend seeing a tax accountant to help you structure their business.

Youtube Videos On This Topic

This video will give you a quick overview of saving tax in Australia.

Government Incentives

The next way to reduce tax is to make use of government incentives there are several government incentives out there that helps you reduce tax one example is

Home Super Saver Scheme

Home Super Saver scheme which allows you to save for your first home inside your superannuation fund potentially benefiting from tax advantages since you are taxed at 15% rather than your higher marginal rate.

It could also potentially help you save for a deposit faster you need to be at least 18 years old and have not previously owned a property in Australia.

So this incentive allows you to make voluntary contributions into your super and withdraw the money when you are ready to buy your first home.

So it’s similar to salary sacrifice but you won’t have to wait until preservation age to withdraw your money you can contribute up to $15000 per Financial year and up to $50000 in total across all years.

When you are ready to buy your first home you can contact the ATO and request for the release of your savings.

The ATO will then instruct your super fund to release the amount you are entitled to there’s still a bit of a new incentive.

So I would recommend speaking to a tax accountant to make sure it will benefit your personal Circumstance.

Get Private Health Insurance

To reduce tax is to buy Private health insurance devoid paying the Medicare Levy surcharge.

The Medicare Levy surcharge is an additional tax imposed on high income earners.

Who do not have Private health insurance in Australia everyone already pays a 2% Medicare Levy.

But if you earn more than $93,000 as a single household you must pay a Medicare Levy surcharge at 1%.

You can avoid paying the surcharge by having an appropriate level or private patient Hospital cover for singles.

Your cover must have an excess of $750 or less for families you must have an access of $1500 or less. Most Private health insurance packages will be cheaper than having to pay the Medicare Levy surcharge.

So you may as well get it and enjoy the benefits that come with it so if your income exceeds the threshold consider speaking to a few Private health insurance companies and find a package that best suits your needs.

Please make sure you double check with them that the package you choose exempts you from the Medicare Levy surcharge.

Then every year when you do your tax return you can enter your health insurance details and they’ll automatically exempt you from the surcharge as always make sure you keep all your receipts and invoices.

Also Read

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Vanguard Personal Investor Kids Account ( How to invest for kids in Australia )

See A Tax Accountant

Let’s move on the last way to reduce tax is to regularly see a tax accountant I know I’ve already mentioned seeing a tax accountant a few times in this article.

But I think it deserves the category of its own if you own a business on multiple Investments then I would highly recommend seeing a professional tax accountant.

If you haven’t done so already a good tax accountant is worth their weight in gold.

Because they will save you thousands of tax over the years and the best part is their fees are usually tax deductible as well a tax accountant can legally structure your business or Investments to be as tax efficient as possible.

Remember they do this for a living and up to date on all the latest tax laws and incentives.

Here are some reasons why tax accountants are important for reducing tax:-

Expert Knowledge & Experience

Expert knowledge and experience tax accountants are professionals who have special class knowledge and expertise in tax laws and regulations they stay up to date with changes in tax legislations and understand the complexities of the tax system their in-depth knowledge allows them to identify legitimate deductions credits exemptions and other tax savings strategies that you may Overlook.

Maximizing Deductions & Credits

Maximizing deductions and credits tax accountants are skilled at identifying deductions and credits that can lower your taxable income they analyze your financial situation review your expenses and ensure you claim all your eligible deductions.

Strategic Tax Planning

Strategic tax planning tax accountants can develop personalized Tax Strategies to optimize your tax position they consider your specific financial goals Investments and business structure to come up with tax efficient strategies by planning in advance and making informed decisions that can help you minimize your tax burden both in the short and long term.

Personalized Advice

Personalized advice every person’s tax situation is unique tax accountants provide personalized advice based on your specific circumstances they assess your financial records evaluate tax implications and offer guidance tailored to your needs they can answer your questions address concerns and provide Clarity on Tax Matters this will definitely help you make better decisions.

Conclusion

Visit ATO Website to do your own research.

If you’ve enjoyed this article then please rate this post and leave me a comment down below what is your favorite way to save tax? I always enjoy reading through all your comments and I try to reply to every single one.

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