How to pay less tax and save money?
- September 15, 2017
- Posted by: Quarles Business and Financial Strategists
- Category: Tax and Accounting
How to Pay Less Tax and Save Money?
As the old saying goes, there are two things in life you can’t avoid – death and taxes.
So while you can’t avoid paying taxes, you can certainly make use of tax planning strategies to reduce your tax bill. But with so many laws surrounding taxation in Australia, how do you know what you should be doing?
And even more importantly, what you shouldn’t be doing?
How Do You Pay Less Tax?
Taxation is a confusing topic even if you have a simple tax return with one income stream, but include investments and businesses, and the complexities increase tenfold. It is completely understandable that the average Australian does their best ostrich impression when it comes to their taxes.
So get your head out of the sand and learn how to reduce your tax bill, and do so legally by using tax minimisation strategies.
Whats The Difference Between Tax Minimisation & Tax Evasion?
Tax minimisation is a completely legal practice of arranging your financial affairs in a way to help keep your tax bill to a minimum.
Tax evasion, on the other hand, is definitely illegal in Australia and occurs when illegal tax reduction arrangements are intentionally used. Some such tax evasion schemes include but are not limited to:
- Claiming the R&D tax incentive when not valid.
- Intentionally not lodging a tax return.
- Channelling money inappropriately through a self-managed superannuation fund (SMSF).
What Are The Tax Deductions, Offsets and Rebates?
One of the simplest ways of minimising your tax bill is by making use of all the tax offsets, rebates & deductions that you and your business are entitled to.
- Tax deductions – A deduction is where your taxable income is reduced as of a result of expense you have incurred to produce your income. Some common deductions include Vehicle & Travel Expenses, Clothing & Laundry Expenses, Gifts & Donations, Home Office Expenses, Self-education Expenses & the Costs of Tools and Equipment.
Find out about Tax Deductions You Can Claim
- Tax Offsets & Rebates – Offsets and rebates aim to reduce the actual tax payable on your income. Some rebates & offsets commonly claimed are the Private Health Insurance Rebate, the Foreign Income Tax Offset & the tax offset for spouse super contributions.
Find out more about Tax Offsets and Rebates You Can Claim
Negative Gearing And Tax Deductions
Negative Gearing is when the cost of owning a rental property outweighs the income you make it each year. This results in a taxable loss which can be offset against your wage and in turn reduce the tax payable on your wage.
Basically, the idea of negative gearing is to reduce your taxable income, so that you pay fewer taxes.
Sometimes by having a negatively geared property, you may actually receive a tax refund. This happens because if you are an employee, your employer is paying tax on each of your salary based on what you are earning. But because negative gearing reduces your taxable income, it also reduces how much tax you should have paid on the income from your employer.
There are some risks associated with negative gearing, and it isn’t necessarily a benefit for every individual, so it is best to speak with a financial expert before deciding to pursue this arrangement.
Tax Deductible Superannuation Contributions
Your superannuation isn’t just for your retirement. It can be used to help you before then, while simultaneously building up your nest egg. There are a few different ways you can reduce your tax bill through your Superannuation. Some of them include:
- Making superannuation contributions on behalf of your low-income spouse.
- Use salary sacrificing to make concessional superannuation contributions.
- Use the Capital Gains Tax Discount to your advantage if you have a Self-managed Super Fund.
Discretionary Trust Advantages
A Discretionary Trust is also known as a Family Trust. In this form of trust, the trustee has discretion as to how the money is distributed amongst the beneficiaries. It is most commonly used to hold investments and then distribute the earnings to the beneficiaries based on their income tax bracket.
By doing this, it means that the beneficiaries on lower income brackets will pay less tax on the money received from the trust than a beneficiary that is in a higher tax bracket.
As you can see, there are many ways that effective tax planning can result in the reduction of your tax bill. Some of these methods are simple as making sure to record your travel expenses for work, and some are a little more complicated.
Want to know what tax minimisation strategies are best for your own situation? Get in touch with one of our Accountants in Perth. They will be able to help provide a tailored strategy for you and your money.