The amount of tax you pay is determined by the income you earn. But you can reduce the amount of tax you pay each year using a number of different strategies. Here are 10 of the most common ways that people pay less tax in Australia.
1. Claim tax deductions
The number 1 way you can reduce your tax is by claiming tax deductions, which 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: These must be directly connected with your work. This usually does not include travel to and from work.
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.
Expert insight
"Maximising your tax refund in Australia starts with knowing your eligible deductions. The ATO has three golden rules:
You must have spent the money yourself, without reimbursement.
The expense must directly relate to earning income.
You need a record (usually a receipt).
Eligible deductions vary by industry—a nurse might claim scrubs, while a tradie could deduct the cost of a power drill. Your business structure also matters, as sole traders and companies have different tax requirements. If you're unsure of what you're eligible for, find an accounting service that knows your business structure, your industry and can help you stay on top of your obligations in as efficient a way possible."
The Commonwealth Government offers a range of tax offsets to help make tax time more affordable for certain people. They change from year to year, but may be 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. If you do your tax yourself through MyGov, you'll be prompted to use the offsets that apply to you, or if you use an accountant or tax agent, they'll do this for you.
3. Salary sacrifice
Salary sacrificing is when you put some of your pre-tax income towards paying for a particular benefit, so it's paid for before you pay any tax. If you pay tax of 30%, for instance, and you salary sacrifice towards a novated lease on a car, you'll make your car payments using income that no tax has come out of.
Also known as salary packaging, it's 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 if you're eligible, sometimes even your home loan.
As you pay for these expenses directly from your pre-tax salary, it reduces your overall taxable income, saving you a small fortune and allowing you to pay less tax.
4. Contribute to your super
Does paying extra super reduce taxable income? It can, depending on your tax rate.
You can salary sacrifice a portion of your pre-tax pay into your super fund, or make a concessional contribution with after-tax dollars and claim them at tax-time. Concessional contributions to super are taxed at a special rate of 15%, which could be much lower than the rate you're paying.
There is a limit on how much you can contribute to super as a concessional contribution each year – currently it is $30,000 annually, including your employer's contributions.
Did you know?
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.
5. Bring forward expenses
Making expensive tax deductible purchases before the end of the current financial year can help reduce your overall income, which could move you down to a lower tax bracket and generate a tax return. For instance, you can pre-pay your health insurance a year in advance, pre-pay interest on a home loan, or buy work-related equipment.
5. Pay off your home loan
If you regularly deposit money into a savings account, you may want to think about making additional home loan repayments or saving that money in an offset account instead. You need to pay tax on the interest earned in a savings account, but no tax is payable when you hold that money in an offset account (which offsets the interest you pay on your home loan). Making extra repayments or saving money in an offset will not only reduce the amount of interest you pay on the loan and reduce your loan term, but you also have access to your cash if you need it.
6. Donate to charity
If you make a donation of $2 or more to an organisation that has the status of a deductible gift recipient (DGR), you can claim this on your tax.
Our expert says
"I donate to charity regularly and because of the tax benefits, I always look at it as if I'm getting the donation 'on sale'! If you donate $30 and your tax rate is 30%, then you'll get $9 back on your tax for that donation. You can give to others and gain a tax advantage - a win/win in my book! Just make sure you hold onto the receipts."
Are you planning to sell any assets that are subject to Capital Gains Tax (CGT), such as shares or an investment property? If so, consider how long you have owned the asset, because if you’ve owned it for more than 12 months, a 50% CGT discount applies. Financial gains are added to your income and then income tax is applied, so if you have a fluctuating income, you could also sell the asset in a year when you expect to earn a lower income. If you make a capital loss, you can keep the records and use it to offset against a capital gain in future years.
8. Consider your insurance needs
If your ability to earn an income is crucial to your financial wellbeing – which is the case for most of us! – then income protection insurance can be worth considering. It 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.
9. Look at health insurance cover
If you earn more than $97,000 per year for singles or $194,000 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 can be up to 1.5% of your income and is calculated and adjusted when you file your tax return – but it's wiped when you have hospital cover health insurance.
10. Get yourself an accountant
An experienced and reliable accountant will have an in-depth knowledge of Australia’s taxation system and all of the changes that are introduced each year, so they can give you up to date advice on 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.
You'll be entitled to a 50% discount if you hold onto an asset for more than 12 months if you are an Australian resident for tax purposes. You can also get a 10% CGT discount if you provide affordable rental housing to people earning low to medium incomes.
If you're planning to turn your residential property into an investment property, you should revalue your home before you do so. You will only be liable for CGT on the capital gain you make from that point forward rather than when you first bought the property. Alternatively, if you decide to live in a property you originally purchased as an investment, you will be partially exempt from CGT.
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 2024–25 income year must be submitted by the 31st of October that year. If you lodge your tax with an accountant or tax agent, you have until May the following year to lodge it.
You may also be interested in
Finder survey: What would Australians do first to save money?
Response
Spend less (eg. on groceries,petrol,clothing)
44.22%
Cancel a subscription (gym,streaming service)
14.04%
Look for a new savings account
9.76%
Review your home loan
9.56%
Review your utilities
8.86%
Review your insurance policies
6.67%
Other
4.48%
Sell your investments
2.39%
Source: Finder survey by Pure Profile of 1004 Australians, December 2023
Your tax return has a different deadline depending on which financial year you're filing for, and whether or not you're using a tax agent. See which tax return due date applies to you in this guide.
Tim Falk is a writer for Finder, writing across a diverse range of topics. Over the course of his 15-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors. See full bio
Your tax return has a different deadline depending on which financial year you're filing for, and whether or not you're using a tax agent. See which tax return due date applies to you in this guide.
Taxback specialises in tax returns for holiday makers, backpackers and foreign students. They file over 20,000 Aussie tax refunds per year. Prices start from $99 for a simple tax return.
Use our tax calculator to estimate how much tax you'll likely pay this financial year, and how much tax you could get back in your tax return.
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