Taxation is an inevitable part of life, but it doesn’t mean we can’t find ways to reduce our tax burden. For everyday Australians, there are several strategies that can be employed to minimise the amount of tax paid each year.
Taxation is an inevitable part of life, but it doesn’t mean we can’t find ways to reduce our tax burden. For everyday Australians, there are several strategies that can be employed to minimise the amount of tax paid each year. These strategies range from claiming deductible expenses to income protection, and they can potentially save thousands of dollars each year. However, it’s important to remember that everyone’s financial situation is unique, so it’s always a good idea to consult with a tax professional to ensure these strategies align with your personal financial goals. Here are eight ways everyday Australians can reduce their tax:
1. Claim Deductible Expenses - As an individual, you’re entitled to claim deductions for expenses directly related to earning taxable income. To claim a work-related deduction, make sure you have a record (i.e. A Receipt) which proves the purchase was made.
2. Donate to Charity - Remember that monies donated to charity, or as a gift, may be tax deductible. Individuals can claim tax deductions for donations given to organisations that have the statues of deductible gift recipient (DGR). The gift doesn’t always have to be money either – it can also be property – so long as it is truly a voluntary transfer where the giver has received no material benefit or advantage.
3. Delay Receiving Income - Where possible, defer receiving income until after June 30 to avoid paying tax in the current financial year. This will help minimise your taxable income in this financial year.
4. Hold Investments in a Discretionary Family Trust - If you’re a high-income earner, a discretionary family trust might be beneficial to you. This will allow you to redistribute some of your income to family members on lower tax brackets. A properly drafted discretionary trust allows trustees to make distributions to the most appropriate members regarding their tax status i.e. distribute more income to beneficiaries on lower tax brackets or those with no other income to utilise the $18,200 tax-free threshold.
5. Pre-pay Expenses Prepaying up to 12 months of tax- deductible expenses may help bring the tax deduction forward to the current financial year. An example of doing this would be to prepay interest on an investment loan.
6. Review Your Income Package - Consider salary sacrificing to reduce your taxable income. Salary sacrificing involves entering into an agreement with your employer to pay for some items or services straight from your pre-tax salary. Individuals can salary sacrifice many things such as electronic devices, motor vehicles, childcare, private health insurance, super and so on.
7. Debt Recycling - If you have an investment and a principal residence, you may be able to restructure your debts to increase your investment loan (where interest is tax deductible) and decrease your principal residence loan (where interest is not tax deductible). This strategy is commonly known as debt recycling.
8. Income Protection - Income protection paid in your personal name is tax deductible. This can be a significant way to reduce your taxable income while ensuring you have financial security in the event of illness or injury.
By implementing these strategies, everyday Australians can effectively reduce their tax burden and potentially save thousands of dollars each year. Always remember to consult with a tax professional to ensure these strategies align with your personal financial situation and goals.
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