Sometimes paying tax can feel like you’re giving money away for nothing. We know that our tax dollars go towards important infrastructure like roads, parks and defence, among other things, but it’s still hard to feel the value this directly gives us. Everybody wants to pay less tax, but how do you do it? If you want to pay less tax in Australia, read on!
The main way you can legally and significantly reduce the amount of tax you pay is by claiming all you can from tax deductions with the help of a tax professional lodgement service. However, there are also other measures you can take. Here are 10 tax strategies to reduce your taxable income and the amount of tax you pay.
What is a tax deduction?
A tax deduction is an expense that you spend for a work related reason. When you claim a tax deduction, it helps lower your taxable income which ultimately saves you tax in Australia. If you lower your taxable income, you don’t have to pay as much tax which means you can spend more money on the things you love. The best way to do this is lodging with an online professional tax agent.
When it comes down to it, there are three main criteria that qualifies an expense for tax deduction:
- You must have spent the money and not have been reimbursed
- It must be related to your job
- You must have a record to prove it
If you’re looking for tax deductions that will help saving tax in Australia, also check out our blog on common tax deductions.
What is your taxable income?
Your taxable income is money generated from your employer or your work. Your taxable income also includes:
- PAYG summaries
- Pensions and government allowances
- Interest earned (banks etc)
- Rental property income
- Business income
- Other income earned (capital gains etc)
1. Claim as many deductions as possible
If you spend any money on things that directly relate to you earning income, you can claim them as a deduction. You might think the little things like laundry costs amount to nothing, but if you count all of the 1%ers, the tax saving can be massive.
Even if you buy something that isn’t exclusively used for your work, you can still claim a percentage of it as a tax deduction.
2. Reduce your taxable income by donating
Luckily for everyone, donating to a good cause doesn’t just help the people you’re donating to, or make you feel good about yourself that you’re doing your part to help society, it also makes it easier for you at tax time.
If you make a donation to a reputable charity and get proof that you did, you can pay less tax in Australia by using that donation to reduce your taxable income and reduce the amount of tax you pay.
3. Paying into a mortgage offset can earn you tax-free income
If you have bought a house and have a home loan, you can pay money into a mortgage offset account which lets you offset your non-deductible interest on the home loan. Your effectively making tax-free income on the interest you’ve saved!
By doing this, you don’t pay interest on the entire amount of the home loan, you are only charged interest on the loan, minus the money in the account. To work out how to do this you can book a meeting to speak to a tax professional. Your bank should also be able to assist you setting this up.
If you’d have taken that same money and invested it in a term deposit, you’d have to pay tax on that interest income. Putting the same money into your mortgage offset and saving interest on your home loan doesn’t incur a tax bill. So paying into a mortgage offset actually saves you tax!
4. Consider salary packaging
Also called salary sacrifice, salary packaging allows you to put some of your pre-tax income toward a benefit before you are taxed. The sorts of benefits include a car, or contributing to your superannuation. These benefits are called fringe benefits and can save you thousands of dollars in taxes every year, with a few exceptions and limits.
Salary sacrifice can be confusing, so if you want to know how to do it right, or if you can do it for an upcoming purchase you can book a meeting to talk to a professional via the One Click Life dashboard.
5. Organise your finances with your partner
You can make concessional contributions to your own superannuation, or your spouse’s. The concessional contribution tax rate is only 15%, which is significantly less than the 19-49% marginal tax rate you might pay on your income.
This one is a great way of saving tax in Australia, but is a bit tricky. Speak to a tax agent for help on this one or your superfund provider.
6. Pay attention to capital gains when selling property
When you make a capital gain, whether it be from property, shares, or other assets, you are liable to a capital gains tax. This capital gains tax is calculated at your marginal income tax rate.
However, if you own an asset for more than a year, the amount of capital gains tax that you pay is halved. So if you are thinking about selling an asset and you’ve owned it for 11 months, maybe think about holding onto it for just a little longer.
7. Meet ATO tax deadlines
As long as you aren’t in a dispute with the ATO and you’ve lodged your tax with a tax agent, you can lodge as late as May in the following financial year. Otherwise, you must lodge before october 31st.
If you fail to adhere to the ATO tax deadlines, you are liable to a broad range of fines and penalties, so make sure you submit your return on time.
8. Save on tax with private health insurance
Most taxpayers have to pay the two percent medicare levy, but fewer have to pay the one percent levy on top of that. If you have to pay the one percent levy, you should do your research into private health insurance. Sometimes, the private health insurance can be less than the one percent levy and it will waive your right to pay it, so getting insurance means you’ll actually spend less money.
9. Keep track of all financial records
When you make a deduction, make sure you firstly have a record of the deduction, and secondly make sure you keep that record long enough for when the ATO asks about the expense. A lot of Australians each year pay more tax than they need to simply because they threw out an old receipt that they thought they wouldn’t need.
Make sure you keep track of all your deductions in one place. A great way to do it is with the help of an online application or platform that can help you with everything in one place.
10. Speak to a tax agent
Without a doubt, the best way to save tax in Australia is by speaking to a professional tax agent. A tax agent has been spending years of their life to learn all about the tips and tricks mentioned in this article, and more, and they can help you with them with no problem at all.
Additionally, the fees of a tax agent are tax deductible. They will absolutely boost your money. Seek out your tax agent before this year’s tax return. It costs nothing to book a meeting with a tax professional when you lodge your tax return with One Click Life.
Reduce your taxes and maximise your refund with One Click Life
The more you deduct, the less tax you pay and the more money you can spend on yourself. We are with you every step of the way, so you don’t have to face the ATO alone. Talk to our friendly, trusted tax accountants about which tax deductibles you can claim and boost your tax refund, stress-free. If you want to know how to pay less tax in Australia, book a free meeting with One Click Life tax professionals.
You can also claim your tax agent/tax return fee back on tax, so why wouldn’t you use one to minimise your tax and maximise your money?
One Click Life fast offers online tax returns at your fingertips in an easy-to-use platform run by industry professionals.
Taxes, health insurance, and Wills can be time-consuming and tedious. Our app allows you to be able to do this fuss-free, giving you a simple way to organise, track and manage all of your Life Admin in one place.
Let One Click Life take care of your Tax Return and life’s essential tasks so you can spend more time doing the things you love.