Staying compliant and maintaining consistency in your tax planning can lead to substantial annual savings, allowing you to allocate funds towards your priorities and the expansion of your business and wealth creation plans The Australian Taxation Office (ATO) defines ‘Tax Planning’ as the right of Australian taxpayers to organize their financial matters to minimise their tax obligations.
However, individuals must ensure that their arrangements are lawful and within the bounds of legality. Practices that violate tax laws are classified as Tax Avoidance and Tax Evasion, both of which carry severe penalties, such as fines and imprisonment.
Here are the top 10 tax planning strategies for income earners, along with insights on maximising the benefits of your tax planning efforts.
- Making additional personal contributions to your SMSF or Superannuation Fund
Making contributions to your super fund not only gives you the opportunity to grow your retirement nest egg, but it can also reduce the amount of your tax bill. Each year, under the concessional contributions cap, individuals are entitled to personally contribute up to $27,500 into their super fund of choice – including the payments made on behalf of their employer/s.
However, going over the deductible superannuation contributions by exceeding the $27,500 cap will leave the taxpayer to pay an effective tax rate of 47% in tax. From 1 July 2024, the concessional contributions cap will increase from $27,500 to $30,000.
- Avoid the Medicare Levy Surcharge with Private Health Insurance
Australians earning over $27k pay the Medicare Levy (calculated at 2% of an individual’s taxable income). High income earners (singles earning $90k+ and couples with a joint income of $180k+) without Private Health Insurance/Hospital Cover must also pay the Medicare Levy Surcharge.
The Medicare Levy Surcharge is charged at an additional 1-1.5% of an individual’s taxable income and encourages individuals who don’t have Private Health Insurance to consider taking it out.
- Negative gearing a property investment
Negative gearing can apply to any type of investment, not just housing. Taxpayers who are negatively geared have the ability to deduct their losses against other income, including their salary and wages. Many high-income earners may also have a negatively geared investment property – this means that the tax deductions received from renting out the property outweigh the rent that is received from the property. Taxpayers can arrange a pre-payment of interest loan to bring forward and interest claim in 2024. This interest must be paid before 30 June to be deductible.
- Make regular donations to charity
Individuals who are passionate about giving back to their community or particular causes should consider making a tax-deductible donation to an Australian Deductible Gift Recipient (DGR).
- Get reimbursed for continuing with your educational journey
Education that will better a taxpayer’s skills in their current role of employment are eligible to be claimed back on tax. The following educational tools can be claimed:
- Further study
- Professional development
- Training
- Self-education
- The use of an executive coach
- Making the most of your home-office
Since the pandemic hit, working from home (WFH) and hybrid work has become the norm for many of us. During COVID, the ATO blessed us with an increase in the home office deduction from 52c to 80c per hour on WFH expenses. But all good things must come to an end and we’re now set at 67c and a revised (not so easy) method.
A SNAPSHOT OF THE REVISED FIXED RATE METHOD
- The increased revised fixed-rate method includes internet, mobile, home phone, stationary and computer consumables, plus energy expenses related to WFH
- You won’t be able to claim additional separate deductions for anything covered under the fixed-rate method
- You can still calculate separate deductions for depreciation of assets used when WFH, like computers, stand-up desks or your fancy ergonomic chair
- Invest in Income Protection Insurance
Income Protection Insurance protects you, your family, and your finances in times of uncertainty. Essentially, it is an effective way to protect your current income if you are left unable to work as a result of illness or injury.
Income Protection Insurance pays up to 75% of an individual’s gross annual income (including your superannuation repayments) in monthly instalments in order to cover the cost of your day-to-day expenses until you’re ready to return to work.
- Get ready to lodge your tax return!
Keeping up to date with all of your records means you can lodge your tax return as soon as possible after the end of the financial year (30 June). Lodging your tax return early means you avoid paying any late penalties and fees, and you’ll get money back in your pocket sooner.
- Stay on top of your records and documents
In the event of an ATO review or audit, taxpayers will be asked to provide relevant and applicable documentation to substantiate whatever claims they may have made over the course of the financial year.
It’s crucial for every taxpayer who has made a claim that they have access to:
- Credit card statements
- Bank statements
- Sales receipts
- Expense invoices
- Tax invoices
- Employee records (only applicable for employers/business owners)
- Get expert advice
Seeking professional advice is crucial in order to ensure that you are implementing strategies that will benefit you in the long run. An expert will be able to present all the tax offsets available to you, while highlighting which options you can claim based on both your individual and business circumstances.
How can we help?
If you have any questions or would like further information or you are seeking property tax advice, please feel free to contact our office via email –info@investplusaccounting.com.au or phone 02 9299 7000 to either speak with someone or arrange a time for a meeting so we can discuss your requirements in more detail.
We have offices in Bankstown, Cronulla, Sydney CBD, Bowral, Liverpool, Adelaide, New Zealand and Dubai. You can arrange a free 15 minute no obligation chat to discuss your options. Please arrange an appointment with our office by clicking here
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The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.
Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.
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