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.
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.
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:
The ATO outlines a few key points that you must satisfy in order to claim an expense as a work-related deduction:
The Commonwealth Government offers a range of tax offsets to help make tax time more affordable for certain people. They are available for:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
You can calculate how much capital gains tax you will need to pay if you plan on selling a non-exempt asset in Australia. But if you're looking to minimise the amount of tax you're expecting to pay, there are a few things you might be able to do.
You will 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.
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.
You can also get a 10% CGT discount if you provide affordable rental housing to people earning low to medium incomes.
If you experience a capital loss, you can keep the records and use it to offset against a capital gain the following year.
| 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% |
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 31 October 2022.
There are several ways you can lodge your tax return with the ATO:
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.
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