Not sure what the rules are for shares or franking credits? Here are the details.Read more…
How to save money on tax in Australia
Here are 13 ways you can save money on tax and reduce your tax bill this financial year.
We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!
There are plenty of simple things you can do to save money on tax, and maybe even get a refund from the ATO. Let’s take a closer look at how Australia’s income tax system works and what you can do to lower your tax bill.
How do I reduce my tax?
While the amount of tax you pay is determined by the income you earn, you can reduce the amount of tax you pay by claiming deductions and taking advantage of tax offsets provided by the Federal Government.
Claim tax deductions
A tax deduction is an expense you incur in order to earn an income. By keeping your receipts and claiming these tax deductions on your tax return, you can reduce the total income on which you have to pay tax, which in turn means a lower tax bill.
Some of the expenses you can claim as tax deductions:
- Work-related expenses. For example, tradespeople can claim the cost of tools, and people who work from home can claim phone and Internet expenses.
- Self-education expenses for work-related study that leads to a formal qualification.
- Vehicle and travel expenses directly connected with your work. This usually does not include travel to and from work.
- Home office costs.
- Donations to charity. All charitable donations of $2 or more are tax deductible, so giving to a registered charity can not only make you feel good, it can also benefit your hip pocket.
- Costs associated with managing your tax affairs, such as paying your accountant to prepare your tax return.
The ATO outlines a few key points that you must satisfy in order to claim an expense as a work-related deduction:
- You must have paid for the expense out of your own pocket and not have been reimbursed.
- The expense must be related to your job.
- You need to have a record, such as a tax invoice or a receipt, to prove expenditure.
Take advantage of tax offsets
The Commonwealth Government offers a range of tax offsets to help make tax time more affordable for certain people. They are available for:
- low income earners
- people who have a dependent relative
- people who receive government benefits
- pensioners and older Australians, and
- people who have private health insurance.
Tax offsets, sometimes referred to as tax rebates, are applied after your tax obligations have been calculated, and can help lower your tax bill. Speak to your accountant about any offsets or rebates you may be eligible to claim.
Salary sacrificing involves putting some of your pre-tax income towards paying for a particular benefit. Also known as salary packaging, it is an arrangement you make with your employer, and can be used to pay for anything from superannuation and child care, to health insurance, child care fees, and even your home loan.
As you pay for these expenses directly from your pre-tax salary, it reduces your overall taxable income, saving you money.
Contribute to your super
Another great way to save money on taxes is to salary sacrifice a portion of your pre-tax pay into your super fund. Salary sacrifice contributions to super are taxed at a special rate of 15%. Not only does this help you save for a secure retirement, it also means a better deal when you lodge your tax return.
However, there is a limit on how much you can contribute to super via salary sacrifice each year, so check with the ATO for more details.
If you’re a low-income earner or self-employed, making after-tax super contributions can also be a good idea. It allows you to take advantage of up to $500 of government co-contributions a year, while self-employed people can claim their voluntary super contributions as tax deductions.
Bring forward expenses
If you know ahead of time that you will have sizable tax-deductible expenses, timing those purchases just right can make a huge difference to your income tax return. For example, making expensive purchases before the end of the current financial year can help reduce your overall income, which could in turn move you down to a lower tax bracket.
Pay off your home loan
If you regularly deposit money into a savings account instead of putting it towards your mortgage, you may want to think about making additional home loan repayments. You will need to pay tax on the interest earned in a savings account, so why not put those savings towards paying off your home loan? After all, not only will this reduce the total cost of the loan, but you will usually be able to access those extra repayments through the loan’s redraw facility if you ever need extra cash.
Alternatively, you could look at putting any extra cash you have into an offset account. This is linked to your mortgage and reduces the interest payable on your home loan, as well as helping you avoid the tax payable if you kept the funds in a savings account.
If you’re already heading for a big tax bill in the current financial year, try deferring some of your income until the following year. For example, if you wait until 1 July to send invoices for recent work, you won’t need to pay tax on that income until the next year. This gives you the chance to minimise your overall tax liability before that time arrives.
Know when to sell assets
Are you planning to sell any assets that are subject to Capital Gains Tax (CGT), such as shares or an investment property? If so, remember to consider how long you have owned the asset, because if you’ve owned it for less than 12 months you will have to pay more CGT. If it’s been in your possession for more than 12 months, a 50% CGT discount applies.
If you have a fluctuating income, you can also sell the asset in a year when you expect to earn a lower than normal income, allowing you to ensure your tax bill stays at a reasonable level. If you make a capital loss, those losses can be carried forward to future years to offset potential gains.
Claim your investment expenses
If you own an investment property or shares, most of your expenses related to those investments can be claimed as tax deductions. This includes interest payments you make on any loans, as well as things such as insurance expenses and property management fees.
However, remember that short-term tax benefits should be just one of many factors you consider when choosing an investment. It’s also crucial to take into account the long-term capital growth and/or income generation. Ask your accountant about the most tax-effective way to manage your investments.
Team up with your partner
It’s important to adjust your finances and investments to suit your financial situation. For example, let’s say you earn a substantially higher income than your spouse, but you both have funds invested in separate high-interest savings accounts. If you move all your savings into the account held by the lower income earner, you will pay less tax on the interest earned on that account.
Keep all your receipts
If you make a work-related purchase but are not sure whether you can claim it as a tax deduction, keep the receipt just in case. You can check it with your accountant at a later date. In fact keeping good records in general, will help you save time and money when 30 June comes around. Find a filing system that works for you and keep it up to date all year round.
Consider your insurance needs
If your ability to earn an income is crucial to your financial wellbeing, income protection insurance can provide a replacement income if you become ill or injured and are unable to work. If your policy is held outside super, your premiums are tax deductible.
It’s also important to examine your health insurance cover. If you’re a high income earner, that is, you earn more than $90,000 per year for singles or $180,000 for couples and families, and you don’t have private health insurance hospital cover, you’ll have to pay the Medicare Levy Surcharge. This surcharge ranges from 1–1.5% of your income and can make a huge difference to your tax bill.
Get yourself an accountant
This is probably the simplest tip in the guide but it’s also the most important. An experienced and reliable accountant will have an in-depth knowledge of Australia’s taxation system and how you can minimise your tax bill. They will be able to assess your finances and help you find and claim every possible deduction.
You can even claim your accountant’s fee in your tax return the following year. It’s a win-win situation.
Compare our online tax providers below
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
How and when do I lodge my tax return?
The income year starts on 1 July and ends on 30 June. You have until 31 October to lodge your tax return for the previous income year. For example, your income tax return for the 2020–21 income year must be submitted by 31 October 2020.
There are several ways you can lodge your tax return with the ATO:
- Online using the MyTax service
- By completing a hard copy tax return form
- Through a registered tax agent
What is a tax plan?
If the end of the financial year is fast approaching, your accountant may offer to help you develop a tax plan. This is typically conducted any time between March and June each year, and involves looking at your overall financial situation for the current income year, and working out ways you can reduce your tax bill.
When developing a tax plan, your accountant will assess your income for the year to date and examine your current financial position. They will calculate an estimate of what your income and expenses will be for the entire year. Then they will suggest strategies and methods you can use to minimise your tax bill when it’s time to lodge your return. These may well include many of the tips outlined above.
A tax plan can be a very useful tool to help you save money, so speak to your accountant about creating a plan to suit your personal financial situation.
You may also be interested in
It's tax time! Finder's money writers share their tips to claim deductions on everything from your home office, car and insurance to your mortgage.Read more…
You can only claim a tax deduction for donations to charities and organisations that meet a certain set of criteria.Read more…
Australians aren’t in the mood for splurging this tax season, with 6.8 million people planning to put their tax return into savings.Read more…
Working from home due to coronavirus and want to know what you can claim on tax? Here's how to claim your home office and other household expenses as a tax deduction this year.Read more…
The government has announced tax cuts of up to $1,080 again this year, but the amount you'll get back depends on how much you earn.Read more…
More guides on Finder
How much TPD insurance should I have?
Find out what exactly TPD insurance covers and how to determine an appropriate level of cover to give adequate protection in the event of disablement.
Thinking of making a TPD claim? Learn the 5 key steps to take
If you need to make a claim on your TPD insurance, follow these steps to ensure you have the best chance of making a successful claim.
How to stake Theta
Find out how to stake your THETA tokens and how Theta’s multi-BFT proof-of-stake consensus mechanism works.
Junk insurance: Are you due a refund? (and how to claim money back)
Class actions are currently underway against CBA, Westpac, Allianz and MTA – here's how to find out if you're eligible to claim any money back.
Occupational therapy and health insurance
Find out how both Medicare and private health insurance cover occupational therapy to get the assistance you need.
Term Life Insurance in Australia
Find out how term life insurance actually works and receive quotes for cover securely.
Disposable income in Australia
Finder analysed earnings and living expenses to find out where Aussies have the most disposable income and where is the best place to retire.
From $10K debt to $50K saved: How I fixed my finances in 4 years
How Eliza paid down her debt, cut up her credit card, saved $50,000 and started investing in a few short years (all while renting in Sydney!).
How to get Virgin Money’s new 1.50% p.a. bonus savings account rate
The Virgin Money Boost Saver account is offering a new bonus rate of 1.50% p.a. for a limited time only. Here's how to get it, and how this offer compares.
6 strategies to make budgeting easier for your business [SPONSORED] Check out these tips for easier and more effective budgeting.
Ask an Expert