Income tax funds our infrastructure and social services, ensuring Australians have access to the services necessary for a vibrant population and growing economy. It’s important for each Australian to pay our fair share of tax, so we can continue to have the quality of life we’ve grown accustomed to. But no one wants to pay more than they have to. Want to know how to save money on income tax and still pay your fair share? Great, this article is for you. We hope you find these income tax saving tips useful.
Give to charity
Giving to charity is something we should all do, if we can afford to do so. The Australian Taxation Office allows tax deductions on donations to organisations which hold the deductible gift recipient status. Any donation over $2 to a deductible gift recipient can be claimed in the year it is made or in some cases it can be spread over five income years.
Take a work-related course
The single best investment you can make is in your own ability to earn an income. So, how do you increase your income? By upskilling. And yes, you guessed it – work related courses are tax deductible. As are some of the non-tuition expenses such as transport between the course facility and your place of work, or extra hardware required to complete the course. There are some specific items which are not 100% deductible so check this link to clarify before you make the investment.
Boost your super
Would you believe the ATO actually gives you a tax deduction for saving more money towards your retirement? It’s true. You can contribute a portion of your pre-tax income towards your super. This option is referred to as salary sacrifice, and reduces your taxable income at the equivalent value of the super contribution. Your contribution is made from your pre-tax income and is only taxed at 15% in the super fund. Salary sacrifice is a great way to save on tax, especially for those with a higher marginal tax rate.
Insure yourself (health/income protection)
The government wants more Australians to purchase private health cover. They use the tax system to incentivise us to do so in two ways. Firstly, by applying a surcharge, called the Medicare Levy Surcharge, to people whose income is over a certain amount (currently $90,000 for singles and $180,000 for families). If you are required to pay the Medicare Levy Surcharge, you should investigate buying basic health insurance to reduce your income tax bill.
If you aren’t earning over the threshold, and you choose to purchase private health cover, you may be eligible for a rebate on your income tax. You can find more information about the rebate here
Income protection insurance is also tax-deductible when purchased as a standalone policy. It’s important to emphasise this only applies to standalone policies, not to policies purchased inside your super.
Get professional advice
Using an accountant to prepare and submit your tax returns is a smart way to save income tax. A tax accountant will be privy to all the deductions available to you, and their fee is deductible. Unless you spend your spare time reading up about tax, an accountant will often save you more than the fee they charge.
With a bit of savvy planning, you can improve your employment outlook, boost your super and give to charity, all while saving on income tax. We call that a win-win!