How To Save Tax In Australia: A Comprehensive Guide For Individuals

Nothing is more frustrating than seeing a large chunk of your paycheck disappear into the government’s coffers. The good news is many legal ways to reduce your taxable income and keep more of your money in your pocket. This article will discuss some of Australia’s best methods for legally reducing your taxable income as an individual. So, whether you are a salaried employee or self-employed, there are ways for you to save on tax. Let’s take a look!

What Are Taxes?

Taxes are compulsory financial charges or levies imposed on individuals or corporations by governments to raise revenue for public services, social programs, or general government expenditure. Governments use taxes to finance public goods and services, including roads, schools, hospitals, police, fire departments, libraries, parks, military defence and much more.

Who Has To Pay Tax?

There are many different types of “taxes” in Australia so the easier way to answer this would be to say “everyone”. If a purchase has been made or compensation received for work – tax has been paid in almost all cases.

What Are The Different Types of Taxes in Australia?

You should be aware of a few different types of taxes in Australia & what taxes impact each individual, entity or situation depends on a great many factors. The two main types of taxes that most people are familiar with are:

  • Income Tax – a direct tax that individuals & companies pay on their taxable income
  • GST – is an indirect tax levied on selling most goods and services in Australia (10%)

There are many, many other taxes that may be encountered, such as the WET (wine equalisation tax), luxury car tax, tobacco excise etc however this article is focused on individuals so how to save money on tax will be focused on “income tax” specifically moving forward.

What Is Income Tax?

Income tax in Australia is imposed on the taxable income of individual taxpayers and corporate taxpayers. It is levied at progressive rates for individuals and at two rates for corporations. Income tax is an important source of revenue for the federal government & it is collected by the Australia Taxation Office (ATO) on behalf of the federal government.

What Is Taxable Income?

Taxable income is the dollar figure used to calculate taxes owed to the federal government. Taxable income is calculated as the difference between assessable income and allowable deductions. 

What Is Assessable Income?

Gross income includes salary and wages, dividends, interest and rent before any deductions are allowed. Assessable income also includes net capital gains, ETP and other amounts that are not ordinarily classed as income.

What Are Allowable Deductions?

The money you spent to enable you to earn income – allowable deductions only – such as stationery, equipment, rent, electricity, telephone and tools. The value of the deduction is subtracted from assessable income to calculate your taxable income.

How Is Income Tax For Individuals Calculated in Australia?

In Australia, income tax is calculated on a progressive system. This system means that the more you earn, the more tax you pay. For example, if you make more than $180,000 of taxable income annually, you will pay 45% on every dollar over that amount. 

For residents, refer here to the tax rates for 2021-2022:

Taxable IncomeTax On This Income
0 – $18,200NIL
$18,201 – $45,00019 cents for each $1 over $18,200
$45,001 – $120,000$5,092 plus 32.5 cents for each $1 over $45,000
$120,001 – $180,000$29,467 plus 37 cents for each $1 over $120,000
$180,001 and over$51,667 plus 45 cents for each $1 over $180,000

What Are Some Tips On How To Save Tax In Australia?

There are a few key ways that you can save tax in Australia. Learn about them in-depth in the following sections:

Save Receipts & Track Expenses Related To Earning An Income

When it comes to tax, keeping track of your expenses throughout the year is one of the best ways to reduce your taxable income because if the records are accessible they can be reviewed by a person who understands the Australian Taxation System (accountant, tax agent, bookkeeper) & this allows them to maximise the number of tax deducations you can claim.

You can claim a deduction for those expenses on your tax return which reduces your taxable income & these deducations do not need to be understood personally to ensure that the maximum deduction is being claimed IF all records are kept.

It’s essential to keep in mind that not all expenses are tax-deductible.

A general rule is that deductable expenses are only expenses that are related to earning an income and only the “business” related portion of that expenses is deductible.

The Australian Taxation Office (ATO) has a large amount of information on what is and isn’t deductible and it largely depends on individual circumstances.

The best course of action here is to track & record ALL expenses believed to be associated with earning an income & discuss each of these with competent taxation professional.

To research this personally, the ATO’s website does have clear information that can be reviewed & might be useful for someone who is motivated to learn more about this themselves.

Get Organised With Your Records 

When it comes to saving on tax, one of the most important things you can do is get organised with your records. Keeping all your essential documents in one place so you can easily access them when it’s time to file your return helps with saving on tax. This connects with saving receipts & tracking expenses very closely.

Some of the most important documents to keep track of include:

  • Your bank statements. 
  • Your receipts and invoices.
  • Your income statements and payslips.
  • Any other documents related to your income or expenses. 

Tax records are required to be stored for 7 years so a reliable physical or electronic filing system is a MUST to make savings on tax each year & also to meet the obligations as a taxpayer in Australia.

Partner With A Professional & Learn About Taxation

Committing to learning about taxation while also partnering with a taxation professional is the fastest way to save on tax in Australia. This is because the understanding gained by self-learning & also speaking to a professional with an understanding of the complex taxation laws of Australia means that ownership is being taken on tax obligations (one of the largest “expenses” any of us pay) and the savings that will result from this over a lifetime will be immense.

What Are Some Common Mistakes People Make When It Comes to Taxation In Australia? 

When it comes to taxation in Australia, there are a few common mistakes that people make. Here are three of the most common:

  1. Not Declaring All Earnings: This is the biggest mistake people make, as it can lead to hefty fines and even imprisonment. Make sure to declare all of your income, no matter how small it may seem. 
  2. Not Keeping Track of Expenses: Keeping track of your expenses is a great way to lower your taxable income. Make sure to keep track of all work-related expenses. 
  3. Not Getting Professional Help: If you’re not too sure about what you’re doing, it’s always best to get professional help. This can save you from making costly mistakes down the track. 

How To Save Tax In Australia 

There are many ways to reduce your tax bill in Australia but what to do specifically does depend on an individual’s circumstance. The best methods to saving tax is to keep accurate records, maximise deducations, learn about taxation and partner with professionals. These 4 methods are the starting point of the tax minimisation journey & they will learn to find many specific actions that can be taken to save on tax. The Accounting Centre is an accounting firm that takes pride in helping its clients to understand the Australian Tax System & taking the time to explain things in a simple way. If interested in legally minimising the tax paid in Australia & partnering with a team committed to empowering their client’s financial success – The Accounting Centre offers a complimentary appointment for potential new clients so click here & see if The Accounting Centre is the right fit today.

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