How to Save Tax in Australia: 11 Ways

how to save tax in Australia

Taxation is a part of our everyday life, so it would be practical to have at least some basic knowledge of how this system works. Being able to calculate how much money should be paid in tax and knowing what exactly taxable income is might help you minimise that portion.

The following article will help you resolve some of the common misunderstandings about taxation, and show how to save tax in Australia. Read on!

How to Reduce Taxable Income?

Salary sacrificing a.k.a. “salary packaging”

When practising this method, a taxpayer should usually put some of their pre-tax income toward a benefit before they are taxed. Most often, salary sacrifice benefits options could be superannuation and automobiles. 

Claim tax deduction

Claim everything you are allowed to as a tax deduction. If you do spend money on anything that relates to earning yourself an income, make sure to keep those receipts, even if it’s something bought for both personal and work use. You might be able to claim a percentage of that item as a tax deduction.

Extra voluntary contributions to the superannuation

This is another great idea on how to pay less tax in Australia. Your employer already puts 9.5 % of your income into your superannuation fund. However, for most people, this is not enough to retire and you’ll probably want to save some extra money. Your employer would put aside more money into your superannuation, before tax, and then pay you the remaining amount after tax. 

This means that all of the money put into your fund is before tax, so it’s tax-free. Doing this can save you thousands of dollars and help reduce taxable income. This is recommended after purchasing your first home because you will not be able to access those funds until after you retire. 

Donate to Charity 

Keep a record of all charitable donations because they are tax-deductible. So if you donate to one of the 600 000 not for profit organisations in Australia, make sure to find the receipt, because all charitable donations are tax-deductible

Use Private Health Insurance 

If you earn more than $90,000 per year, and you don’t have Private Insurance, you would pay an extra 1% Medicare Levy plus a compulsory 2% Medicare Levy Surcharge.

Prepay Taxes 

Prepaying some income expenses can save you money in taxes next year. This will give you a higher tax refund. All prepaid expenses must be within a thousand dollars or meet the annual prepaid expenses rule.

Delay Income 

By postponing your income to a later year, you will be able to minimise your current income tax debt and invest the money you use into paying your income tax. And when you finally report your income, you may fall into the lower income tax bracket.

Use of Offsets 

Tax offsets commonly referred to as rebates, reduce the amount of tax you have to pay, but only if you meet certain eligibility requirements. Offsets can reduce your tax payable, but they can’t get you a refund.

Claim work from Home Office Expenses 

These charges will allow you to claim 0.80 cents per hour of all your home office expenses.  

Hire a Tax Agent 

One step could be to invest in a really good tax accountant. Such professional expertise can save you thousands of dollars each year and would be able to pay themselves with all the money returned from your tax.  

Stick to the rules 

The ATO keeps track of and investigates every tax deduction that might be suspicious to them. Make sure to avoid tax evasion schemes or hiding money, because taxpayers who tried these false deductions are already in big trouble with the ATO. Penalties can range from fines to imprisonment for more serious offences.

What is a Tax Plan?

Time spent planning and creating a strategy to reduce one’s taxes is what is considered a tax plan. There’s no single solution that can be applied to all cases of tax planning. 

Thus, the plan objective would be to reduce taxable income which would result in less tax pay. By doing this, you will make the most of any funds you might possess.

Finishing Thoughts 

The Australian tax system may be difficult to figure out. Having the most correct and up-to-date information and doing some research should help you shape a better understanding of it. You can also get advice from a professional – they would be able to address specific situations and instruct you on how to save tax in Australia. 

FAQs:

1. How do high-income earners reduce taxes in Australia?

If you’re a high-income earner in Australia, it is wise to implement a tax minimization strategy: 

  • Maximizing all of your allowable tax deductions
  • Maximizing your tax offsets
  • Reducing your capital gains tax (CGT) liability
  • Buying assets in your partner’s name

2. Why is my tax so high in Australia?

Australia has a progressive tax rate, which means the more you earn, the more you have to pay tax. There are five income tax brackets in total. For all income between 0 – $18,200 there is 0 % tax, $18,201 – $45,000 there is a 19% tax rate, between $45,001 – $120,000 there is 32.5% tax, between $120,001 – $180,000 there is 37% tax, and from $180,001 and over a 45% tax rate. 

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