Here are 6 simple strategies to minimise tax specifically for employees. Most of these strategies are quite common but it is very important that you understand the risks associated with them.
⚠️ Important: Always consult with a qualified accountant or financial advisor before implementing any tax strategies.
1️⃣ 🏦 Tax-Deductible Super Contributions
Before July 2017, the only option for employees to make additional concessional super contributions was through salary sacrificing. The substantial changes that took effect from 1 July 2017 have made this process much simpler.
Why it works: Salary sacrificing into super is highly effective for both reducing tax and boosting retirement savings.
💡 Example
- Gross income: $100,000
- Additional super contribution: $10,000
- Tax saving: $3,900
📋 Key Points to Remember
- Contribution cap: $25,000 across all ages
- Super fund tax: 15% (increases to 30% if income > $250,000)
- Double benefit: Reduces tax + increases retirement savings
📝 Note: You must obtain an acknowledgment receipt from your super fund to claim the deduction.
2️⃣ 🚗 Novated Leasing / Salary Sacrificing Motor Vehicle
Novated leasing or Salary sacrificing car is one and the same thing. It is a three-way agreement between an employee, their employer, and their finance company, where the employee forgoes part of their pre-tax income in exchange for the car. The employer agrees to deduct payments from the employee’s pre-tax salary and pays it to the finance company. You can find numerous calculators online that can calculate how much tax savings one can achieve by novated leasing.
Please be mindful that you just don’t look at the calculations provided but look at the numbers that go behind them for example what interest rate is the finance company offering you and whether it is comparable to what you can achieve? Also, whether the finance company is giving you a GST discount on the car.
3️⃣ 🏠 Negative Gearing
What is negative gearing? It is a form of financial leverage whereby an investor borrows money to buy an income producing asset like property or shares and expects the gross income generated by the asset to be less than the expenses incurred on the property, at least in the short term, which is then offset against your other taxable income. For example, you buy a property worth $450k and you borrowed $400k. Let’s say you received $18k as rental income and you paid 20k in interest and you had $7k in other expenses like depreciation, insurance, rates etc. Since you had a loss on the property in the amount of $9k ($18-20-7) this loss can then be offset against your taxable income. The amount of tax that you will save will depend on your marginal tax rate.
Effective negative gearing relies on the value of the investment increasing over time. Like all investment strategies, investors must consider the inherent risk associated with borrowing money for an investment. The borrowers should consider their capacity to repay the shortfall and continue servicing the investment loan should it cease to make a return if the tenants leave or for other unforeseen circumstances.
4️⃣ 📊 Investment Bonds
An investment bond is basically a tax paid investment and it can be effective for high-income earners provided some rules are followed.
Tax on investments earnings are paid by the bond issuer at the company tax rate and after ten years from the start date withdrawals are tax-free. However, if you withdraw the money from the bond within 10 years, the earnings on the bond are assessable in your personal hands and the appropriate tax offset applies.
It is suitable for people who are looking for long-term investments and are unlikely to need access to their funds for at least 10 years. Before investing in investment bonds, you have to ensure that you understand the features, risks, costs and other considerations.
Again it is very important that you speak to your financial advisor on investment in bonds and whether it suits your risk profile.
5️⃣ 📝 Maximize Your Tax Deductions
Make sure that you claim all work-related deductions provided you have all the substantiation. Taxpayer can only claim up to $300 work-related expenses without receipts provided one has incurred those expenses
Work-related expenses may include mobile phones, subscriptions, home office, union fees, technical books etc. Basically, there should be a direct nexus between the expense being claimed and your work. One can also claim travel expenses like meals, accommodation and incidentals while away for work purposes. You can also claim motor vehicle expenses provided you use it for work purposes like traveling from one office to another office or to see clients. There are 2 methods by which you can claim motor vehicle expenses Logbook and Cents per kilometers. You can read about those methods here. You can also claim expenses like premiums paid for income protection insurance.
Again if you want to save tax, you will have to spend money and if you are spending money just to save tax is illogical.
One can also refer to deductions for specific industries and occupations.
6️⃣ ⏰ Prepay Expenses (Timing Strategy)
Prepaying expenses can work if your income in one particular year is higher due to a one-off event like capital gain and it has pushed you into the next bracket. For example, if your taxable income is $85k and due to a capital gain of $20k, it has pushed you into the next bracket, then it might make sense for you to prepay some of the expenses. For example, if you have an investment property, you can prepay insurances, interest etc.
🎯 Conclusion
This document contains general advice and is not a substitute for legal, tax, and financial product advice. If you have any questions or would like more information, don’t hesitate to book an online appointment or contact us. Our team of experts is here to help.
