How to Save Tax in Australia
Published on May 25, 2023
Australia: the land of awe-inspiring landscapes, rich cultural heritage, and… a rather complex tax system. It’s no secret that us Australians are well-aware of the bane that comes with tax deadlines, regulations, and liabilities.
But the million dollar question is, “How can I reduce my taxable income?” From making the most of your superannuation contributions to mastering the art of timing your income, this article is a collection of seven practical, actionable strategies designed for the everyday citizen. This isn’t just another list of generic tax tips. We’ll tell you exactly how to save tax in Australia.
7 Easy Ways to Reduce Your Taxable Income in Australia
1. Claim All Tax Reductions
Our first stop brings us to a familiar sight: tax deductions. Often overlooked, claiming all eligible tax deductions can be a lifesaver, chipping away at your tax liability bit by bit. These include work-related expenses, such as uniforms, professional subscriptions, and travel between workplaces, home office expenses for those working remotely, and investment-related costs (like interest on investment loans).
It’s crucial to remember, however, that keeping meticulous records and receipts is non-negotiable. The Australian Taxation Office (ATO) might demand proof of these expenses.
A well-kept record could mean the difference between a rejected claim and successful tax reduction. View it as a short-term sacrifice for a long-term gain – your future self might thank you.
Related article:
How to Apply for a Tax File Number – Australia
2. Consider “Salary Sacrificing”
“Salary sacrificing” or “salary packaging” involves an agreement with your employer to give up a portion of your pre-tax salary in exchange for benefits of equal value. Such benefits could include a company car or additional superannuation contributions.
The sacrificed portion of your salary isn’t considered taxable income. This means that it reduces the amount of tax payable at the end of the financial year.
Note that while salary sacrificing can offer tax advantages, it may also impact other aspects of your financial life. You’ll need a holistic view of your finances when considering this strategy.
3. Donate to a Registered Charity
This tip merges the principles of benevolence and taxation. Making a donation not only supports a cause close to your heart but can also be a tax-saving strategy.
The organisation you’re donating to must be a registered charity. The Australian Charities and Not-for-Profits Commission (ACNC) maintains a list of registered charities, which can be easily accessed to confirm the status of an organisation.
Pro tip
Not all donations are tax-deductible. Generally, donations of $2 or more are eligible for a deduction. It must be a genuine gift – meaning you should not receive any significant benefit from the donation, like goods or services.
4. Get Private Health Insurance
In Australia, the Medicare Levy Surcharge (MLS) is imposed on taxpayers who earn above a certain income threshold and don’t have an appropriate level of private hospital cover.
Keep in mind, however, that not all private health insurance policies are created equal. Choose a policy that not only helps you avoid the MLS but also provides coverage that suits your individual health needs.
5. Contribute to Your Superannuation
Contributing to your super fund is not just about securing your future but can also have immediate tax benefits.
Super contributions come in two types: concessional and non-concessional. Concessional contributions are pre-tax income and include employer contributions and salary sacrifice. These are taxed at a concessional rate, which could be less than your marginal tax rate, leading to tax savings.
If you’re a low or middle-income earner, you may want to consider the Super Co-contribution scheme. This way, you’ll be making after-tax contributions to your super fund which may make you eligible for a co-contribution from the government.
Investment choices within your super can also affect your tax position. Some investment options might have lower tax rates compared to others. Take time to understand these options and consider seeking professional advice to make informed decisions.
6. Delay Income Collection
This might seem counterintuitive at first, but it can be beneficial in certain scenarios. You want to time the receipt of your income to fall into a different tax year, potentially reducing your tax liability for the current year.
This strategy might be more applicable to self-employed individuals or businesses with discretion over when income is recognized.
7. Meet ATO Tax Deadlines
Timely lodgment of your tax returns and payment of your tax liabilities can save you from penalties and interest charges.
Mark these dates in your calendar. The financial year in Australia runs from July 1 to June 30, and you usually have until October 31 to lodge your tax return if you’re flying solo. If you’re partnering with a tax agent, you might have an extended deadline.
If you’re running a business, remember that additional tax obligations and deadlines apply. These can include Business Activity Statements, Goods and Services Tax, and Pay As You Go instalments.
Pro tip
If you anticipate difficulty in meeting your tax obligations on time, contact the ATO as soon as possible. They offer support and can arrange payment plans. This gives you some wiggle room to plan your finances.
Reduce Your Taxes With The Bookkeeping Studio
I understand taxes can all seem overwhelming. Where do you begin? With so many intricate laws and a multitude of variables at play, how can you save tax in Australia? The key lies in turning each rule into an opportunity. By following the aforementioned tax-saving strategies, you’re now better prepared to take control of your financial situation.
Professional advice can be invaluable during tax season. If you’re in the Southern Highlands of Australia, The Bookkeeping Studio is ready to assist you. We’ll transform complexity into clarity, tax burdens into tax opportunities. We’re also fluent in the language of Australian tax law. Learn how to save tax in Australia today.
Hey, my name’s Bindi Gethen! I’m the founder of The Bookkeeping Studio in Australia. With over 15 years of experience in the industry, I have a deep understanding of the challenges that small and medium-sized business owners face when it comes to managing their finances.
I am passionate about empowering my clients with the financial information they need to succeed. My team and I pride ourselves on our commitment to exceptional value, accuracy, and confidentiality. Our virtual bookkeeping services include payroll, budgets, and management reporting, among others.
Not to toot our own horn, but we can assure you that you won’t find a bookkeeping partner like us anywhere else in the Southern Highlands.
