The tax-free threshold in Australia is $18,200 while the top marginal tax rate is 45%. Some categories of high earners pay almost half of their earnings to the taxman. Taxes are inevitable but they are also a huge burden.
Fortunately, there are lots of ways, both simple and sophisticated, to legally cut down on the Australian Tax Office’s take. As an individual or business owner, you can utilize the experience and planning expertise of an accounting firm Melbourne practice to help you in optimizing your tax position before the end of the next financial year. With proper tax planning, you can make the most of your financial inflows and ensure you are getting the most out of the tax system. Here are some simple tips to legally minimize your tax burden:-
Contribute to Superannuation
This is probably the quickest and easiest way to minimize your tax burden. Through salary sacrificing arrangements, you could divert some income that could have been taxed at your marginal tax rate into a fund with a concessional tax rate of just 15%. If you are expecting some bonuses from your employer, you should consider putting these funds into a superannuation scheme.
Use co-contribution schemes
This is another novel and easy way to cut down on your tax burden. Under a co-contribution scheme, the government makes a contribution into your super account for every dollar that you contribute into your super up to $500 if you are a low or middle-income earner. The amount contributed by the government depends on the amount that you have contributed as well as your income threshold.
Are there any personal or small business tax concessions that you may be eligible for? Take advantage of each and every one of these concessions to reduce your tax burdens. The ATO offers numerous tax concessions, particularly for small business. One of the most popular is the $20,000 asset write-off that offers immediate tax-deductibility for any asset acquisitions by small businesses costing less than $20,000. There are numerous other business and income tax concessions that are available in Australia such as the income tax exemption, FBT exemptions, GST concessions, FBT rebates, DGR endorsements and tax refunds for franking credits. Talk to an accountant Melbourne professional to offer you professional guidance on the range of ATO tax concessions that you may be eligible for.
Choose an appropriate business structure that will put you in the best tax position and also ensure the optimal protection of your assets. Talk to an accountant Melbourne professional, a tax adviser or a business adviser to offer you professional advice on the best structure that will comply with the relevant laws and regulations while putting you in a pole position when it comes to tax matters.
What’s new in the Federal Budget?
Every year, the Federal Budget outlines a host of new tax concessions that individuals and businesses could leverage to make some tax savings. Listen to the new budget and be sure to claim all the tax concessions that you may be eligible for.
Claim your tax deductions
Hire a professional tax accountant Melbourne expert to help you go after all the applicable tax deductions. You have to be sure of what you can and cannot claim and then file your claims to maximize on the deductions. An average Australian claims more than $3000 in tax deductions every income year so it is quite a tidy sum to leave on the table.
Reduce your capital gains tax
If you have held an asset for more than one year, the capital gains will be discounted by 50% for individual taxpayers or by 33.3% for superannuation funds and then taxed at your marginal tax rate. However, it is still possible to reduce your capital gains even further if you have investments that are incurring losses. By selling these off, you will help reduce the capital gains that you have gotten on other investments thereby reduce your tax burden. You may also choose to carry forward these losses to the next financial year.
Have a mortgage offset account
Having a mortgage offset account is generally used as a strategy for minimizing the length of the mortgage loan and the interest costs. However, it can also be an effective tax saving strategy. The money that you put in your mortgage offset account would have been otherwise attracting interest in a savings account and getting taxed at the marginal rate. If you have recently fallen on some cash and you happen to have a home loan that you are struggling to pay off, it may be prudent to pump the extra cash into a mortgage offset account that will help reduce the amount of the interest that is payable on the loan while sidestepping the taxes that you’d have paid on the interest earned on the cash.
Use a discretionary family trust
It is a popular option for many wealthy families. A trust is also one of the most effective ways of holding your investments. In a trust, the assets are controlled in a different investment structure where some designated person(s) control the assets on behalf of the trust beneficiaries. The person(s) managing the trust are called trustees.
Under the discretionary trust structure, the trustees decide who will receive the income and the capital under the trust. As a tax minimization strategy, a discretionary trust can be used by family members in the higher income tax brackets to benefit listed beneficiaries that fall under the lower income tax bracket. A discretionary trust does not pay tax but the beneficiaries must pay taxes on their distributions. If these beneficiaries are unemployed or on lower income brackets, they will pay lower or zero taxes on their trust income depending on their marginal tax rates.
If you need help in legally minimizing your tax burden, talk to a tax accountant Melbourne expert for professional advice and guidance that will put you in a more favourable tax position.