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Salary Sacrificing
This one is pretty simple to understand and do but has the opportunity to save A LOT in tax and I have been very surprised lately to realise how many people do not know about it so listen up!
This is where you use pre-tax income to in lieu of your post-tax income for certain things such as contributing to your super, buying a car, health insurance and more.
However, everything but super ultimately depends on your employment and hence should be discussed with them to see what is on offer. But it is important to know it is possible in the first place and how it can help you!
The main thing I cannot stress enough is the potential importance of salary sacrificing into super. There are so many benefits to this. If you make over $37,000 a year you can save money through this method as you will be taxed at 15% for up to $25,000 annually.
However, you must take care not to go over $25,000 (which includes employer and concessional contributions) as you will then begin being taxed at your marginal rate along with a not so sweet excess concessional contributions (ECC) charge (Thanks ATO).
The downside? Yes, your money will be locked away in your super, but it will also be growing and will be there to help provide a comfortable retirement which is a primary aim of this blog.
See more here: https://www.moneysmart.gov.au/superannuation-and-retirement/how-super-works/super-contributions/salary-sacrifice-super
Know what you can claim and claim it
Again, simple but important, simply by checking on the ATO website what you can claim and how to do so and then actually collecting any necessary evidence (e.g. receipts, as painful as it can be). You could end up saving some of your hard-earned money.
This is another thing people don't do, however, unlike Salary Sacrificing (discussed above). this one may be able to be chalked up to laziness.
Some things most people can claim include:
Buying and washing work clothing
Union fees
Income protection
Journals and trade magazines related to your work
Travel between workplaces (if you have multiple)
The cost of buying safety glasses, hats and sunscreen (if you work outdoors)
Any costs involved in making an income from investments (e.g. stockbroker fees, internet fees)
This link is your friend, it contains a wealth of things you can claim: https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/
Now onto the more complex methods
Set up a trust
Trusts are complicated and what is best for you is largely dependent on your specific situation, however, they can offer insane tax savings when applied correctly. This is something I recommend seeking professional advice on but now you know about it!
Here is how it is most commonly done, it is called income splitting. What a trust allows you do is basically put your assets into the trust and then split (thus the name) the income tax from those assets to various people.
I am sure you have worked out already that the tax saving part comes in when you palm off the income into someone's name who has a lower income and thus marginal rate (the % of tax a person pays on their income) resulting in less tax being paid.
This is completely legal and works, you even used to be able to write off income into children's names, however, the ATO caught onto this and now under 18's are taxed heavily but don't let this detract from the huge potential of a trust.
Of course, the costs of the trust, your income and the availability of beneficiaries (the people who will pay tax on the income from the trust) need to be considered!
Buy new property and claim depreciation (and other costs)
A lot of people are aware that property can be used as a way to reduce your tax payable, but many know that you can use deprecation (on new property) to really take this to a new level. Using depreciation (particularly on new property's) can make a massive difference in how much tax you pay and even change what was going to be a negative cash flow property into a positive one.
So you know I am not lying: https://www.ato.gov.au/general/property/residential-rental-properties/expenses-deductible-over-several-years---borrowing,-depreciation,-capital-works/
Start a small business
First things first, the least advantageous position to be in when it comes to earning money and tax in Australia is to be an employee. Already you get the benefit of paying tax annually meaning you can accrue interest throughout the year rather than the ATO holding onto it and giving you a portion back at the end of the financial year (your tax return).
This one is great because you are not only potentially reducing your tax paid but also are setting up a source of income (this is what we aim for as entrepreneurs). Having an ABN allows a whole new opportunity to claim for things you otherwise may not have been able to as well as some great tax breaks such as the relatively recent $20,000 instant asset write off (which may I add has been extended until 30 June 2019).
I think the best example of this is the simple fact that if you use your home office for work you can then claim all sorts of things you otherwise could not such as PC's and their depreciation, stationary, internet, phones and phone bills, electricity. That is, of course, assuming you are using them for that purpose.
See more here: https://www.ato.gov.au/business/income-and-deductions-for-business/deductions/
Here is the home office specific stuff: https://www.ato.gov.au/business/income-and-deductions-for-business/deductions/home-office-expenses-for-a-home-based-business/
Bonus: Stop buying things just because they are tax deductible, you only get a percentage back, so you are wasting your money...
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Summary:
-Salary Sacrifice a portion of your income into super
-Claim everything you are eligible to
-Consider setting up a trust and income split
-Buy new property and claim depreciation
-Start a small business and enjoy the tax perks
Enjoyed the article? Check out some ways to make more money in Australia here:
https://www.aussiemoneyman.com.au/home/how-to-make-hundreds-more-per-week
As always, all information is provided in faith that it is accurate and reliable. However, it is to be noted I am NOT a financial adviser and information given is purely my opinion on discussed matters. It is always recommended you speak to a financial adviser before making any financial decisions you may not be sure of.