Looking to pay less tax and make end of financial year accounting less stressful?
Effective tax planning can help employees, sole traders, business owners and investors better manage their taxes throughout the year, make the returns process smother and help maximise returns.
Here are smart ways to pay less tax and put more money back in your pocket.
Consider Salary Packaging
If you’re a part or full-time employee or a business owner, salary packaging is one of the smartest ways to reduce tax.
The ATO-approved agreement enables you to pay for everyday expenses with pre-tax salary. This reduces your taxable income and increases your take-home pay. Find out how to get started here.
Some expenses you can salary package include:
- Rent or mortgage payments
- Utility bills
- Car loan
- School, childcare or university fees
- Health insurance
- Personal expenses
- Computer software and laptops
To know if salary packaging is an option, ask your employer. For business owners there are also some benefits, such as attracting and retaining employees. It’s also used as an incentive to increase productivity, but admin costs need to be budgeted for.
Add to Your Super
Superannuation offers tax benefits to boost retirement savings.
Employers are only required to pay 9.5% of your earnings into super in Australia. At retirement, having used only the minimum contribution rate, your Super savings may be too low to support your preferred lifestyle if you’re not contributing more along the way.
Whilst it’s often seen as a ‘rich person tactic’ to pay less tax, all levels of income earners can benefit from this strategy.
To take advantage, make sure you:
- Make payment(s) by June 30th and notify your super fund before lodging your tax return
- Are 75 years or under; if you’re aged 65-74, you’ll also need to pass the work test to claim
- Don’t exceed $25,000, which is what pre-tax contributions are capped at each year
- Give your TFN (Tax File Number) to your super fund to avoid paying more tax on super
Tip: Higher earning spouses can reduce their tax by contributing some of their super to their spouse’s super on behalf of their non-working, or low-income earning partner. The tax offset it up to 18% on super contributions of up to $3,000.
Double-Check Old Returns
Found an old receipt you need to claim back?
Previous tax returns could provide benefits if deductions or credits weren’t included.
Once they’re paid out, check to see if you’ve missed anything. If it’s been less than three years since you filled it, file an amended return to claim more from that tax break.
Make sure to keep receipts or proof though. Amended tax returns invite the ATO to take a closer look and may raise red flags with tax auditors.
Invest in Health Insurance
Paying for private hospital cover and health insurance saves most Australians tax money.
The Australian government has designed a system that encourages private health cover. Without it, as your income increases, the amount you pay in extra taxes grows quickly. Often investing in private cover is cheaper than paying that tax surcharge each year.
If your income is $90,000+ for singles or $180,000+ for families and you don’t have cover, you’ll pay an additional minimum 1% Medicare levy surcharge. That’s on top of the already-compulsory 2% Medicare levy.
However, the government rewards those with private health insurance and allows you to claim a rebate or tax offset.
- Know the current Australian tax brackets and rates
- Practice good tax planning and record everything
- Claim all legitimate work-related expenses and deductions. But be wary the ATO targets these expenses and may need proof of your claim if you’re audited
- Reduce your tax bill by salary packaging your pay
- Contribute to superannuation
- The deadline for tax returns is October 31st, unless you’re registered with a tax agent
Take the stress out of tax time, start implementing these strategies today to pay less tax.
About the Author
Founder of Toward Music, Jayde Ferguson Walker is a music enthusiast and scripturient with a consuming passion to write. With 15+ years’ experience in the local music industry as a music journalist, Jayde also writes in the business, travel and home improvement industries. You can catch her on LinkedIn.