8 Ways To Maximise Your Australian Tax Return in 2023
8 Ways to Legally Pay Less Tax
In this article, we will explore eight strategies to help you reduce your tax liability and potentially save thousands of dollars each year. These tips can be especially beneficial during tax season and can help you plan better for the future.
1. Salary Sacrifice
Salary sacrificing involves asking your employer to contribute a portion of your pre-tax salary into your superannuation account. By doing this, you can reduce your taxable income and potentially save on taxes. In Australia, your employer is required to contribute 10.5% of your salary into your super retirement account. Any additional contributions you make through salary sacrifice are called concessional contributions and are taxed at a lower rate of 15%, compared to your marginal tax rate.
Example: Let’s say Alfred earns $70,000 per year and decides to salary sacrifice an additional $20,150 into his super. By doing this, his taxable income for the year would be reduced to $49,850. If he didn’t salary sacrifice, he would have to pay taxes based on his marginal tax rate of 32.5% plus the Medicare levy. By salary sacrificing, Alfred could potentially save $4,181.50 in taxes.
2. Claim Work-Related Expenses
You can claim deductions for work-related expenses that meet specific criteria and are directly related to your job. Some common deductions include:
- Vehicle expenses (excluding commuting)
- Travel expenses
- Home office expenses
- Work-related self-education expenses
- Tools and equipment
- Other work-related expenses (professional certifications, subscriptions, etc.)
Make sure to keep track of your expenses and retain receipts as proof. You can claim up to $300 without written evidence, but for amounts exceeding $300, you will need to provide documentation.
3. Have a Capital Gains Tax Strategy
If you are an investor or considering investing, it’s important to have a capital gains tax strategy. Here are three ways to minimize your capital gains tax:
- Hold assets for more than 12 months to receive a 50% capital gains tax discount.
- Offset capital losses against capital gains to reduce overall tax liability.
- Consider the timing of asset sales to strategically manage capital gains.
Be aware that engaging in “wash sales” (selling and repurchasing assets for tax benefits) is illegal and may result in audit or penalties.
4. Maximize Deductions for Investment Properties
If you own an investment property, take advantage of the numerous tax deductions available. Some eligible deductions include:
- Interest on loans
- Repairs and maintenance
- Insurance premiums
- Depreciation of assets
- Property management fees
Ensure you claim all eligible deductions to maximize your tax benefits.
Reducing tax on real estate in Australia can be achieved through various strategies. Here are some potential strategies to consider:
- Negative gearing: Borrowing money to invest in property where the expenses exceed the rental income, allowing you to offset other taxable income.
- Capital gains tax discount: Holding your investment property for more than 12 months may make you eligible for a 50% reduction in the taxable portion of any capital gains realized when selling the property.
- Depreciation deductions: Claiming deductions for the wear and tear of certain assets within the property, such as appliances or fixtures.
- Deductible expenses: Claiming all eligible expenses related to your investment property, including property management fees, insurance, repairs and maintenance, council rates, and interest on loans.
It’s essential to comply with all Australian tax laws and regulations and consult with a tax professional for the most up-to-date information.
Another way to reduce tax is to take advantage of small business concessions if you are a small business owner. These concessions can include:
- Small business tax offset: A tax offset for small businesses with an annual turnover below a certain threshold, potentially saving up to $1,000 per year.
- Instant asset write-off: Immediate deduction of the cost of eligible assets, such as equipment and vehicles, up to a certain threshold.
- Simplified depreciation rules: Accelerated deductions for eligible assets.
If you have a small business or are thinking of starting one, it’s recommended to consult with a tax accountant to structure your business to be as tax efficient as possible.
Government incentives can also help reduce tax. One example is the First Home Super Saver Scheme, which allows you to save for your first home inside your superannuation fund, potentially benefiting from tax advantages.
Buying private health insurance can help avoid paying the Medicare levy surcharge imposed on high-income earners who do not have private health insurance in Australia.
Regularly seeing a tax accountant is important for reducing tax. They have expert knowledge and experience, can maximize deductions and credits, provide strategic tax planning, and offer personalized advice based on your specific circumstances.
Please note that this information is for educational purposes only, and it’s recommended to consult with a tax professional for personalized tax strategy.
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So, here are eight ways to legally reduce your tax in Australia:
- Claim all possible deductions
- Utilize government incentives and rebates
- Contribute to superannuation
- Maximize your capital gains tax discount
- Take advantage of small business tax concessions
- Offset capital losses against capital gains
- Split income with family members
- Use salary sacrificing