10 Easy Ways to Pay Less Tax

Keep Good Tax Records

These days, the ATO is asking a lot of questions about tax deductions. But that doesn’t mean you can’t pay less tax. You can still get a really good refund if you just keep ALL your receipts and records for every deductible expense throughout the year. That way you have a legitimate record for all your claims, should the ATO decide to take a closer look at your returns.

Keep track of every deduction to always pay less tax.

Record keeping is easy these days. Put aside just 5-10 minutes each week to download statements, update your logbooks, and put all your receipts into a folder. Our biggest tip is to photograph receipts, using the add deductions function in your Etax account, so they’re all exactly where you need them come tax time. Save time AND pay less tax!

Charitable donations are tax-deductible

Did you know that every donation over $2 to a registered charity is tax deductible?

This is something that lots of people either forget about or don’t realise they can do. Donating to charity is always a good thing but what makes it even better is that the amount you donate is an expense you can claim on your tax return. That’s definitely a win-win.

After you make a donation, you should receive a receipt. Keep it in your tax receipts folder! At tax time, add up the charity receipts and enter the total into the charity donations section of your tax return.

  • One thing about donations we should clear up: Your donations do not come straight back onto your tax refund.  The amount is subtracted from your taxable income, which means you get a percentage back.

Claim everything you are allowed to claim as a tax deduction

In general, if you have to spend money on anything that relates to “earning your income”, make sure you claim it.

Even if you purchase an item partly for work and partly for personal use, you can still claim the work-related part as a tax deduction. You pay less tax and get a great refund!

Not sure whether you can claim a particular item? Keep the receipt and ask Etax support in the ‘Any other questions?’ section in your next Etax return. Remember, it is always better to keep a receipt and not be able to claim it than to throw it out and miss a valuable tax deduction later on.

Get Affordable Advice from a Tax Agent

In most cases, using a tax agent won’t just save you a lot of time, it will also improve your tax refund or net payable, which means you always pay less tax. This is why the ATO’s statistics show around 70% of Australian tax returns are lodged with a tax agent – like Etax!

Etax is an expert in tax and constantly stays up-to-date with changes in tax legislation. We’ll try to find deductions you are unaware of or an offset you didn’t know existed. Quite often our people quietly spot and correct little mistakes that could slow down a taxpayer’s refund. Your refund. Left unchecked, these mistakes can also cause an ATO reassessment or audit.

The best part is; the cost of the Etax online return is very low and you’ll claim it as a tax deduction on next year’s tax return. If you’re paying $150 or more to your tax agent, you might want to shop around. The majority of Etax clients pay well under that, with unlimited phone and live chat support, as well as year-round resources included. What’s more, you only deal with real accountants, based at the Etax Brisbane support centre. Now that’s definitely the easiest way to pay less tax!

Medicare Levy Surcharge vs Private Health Cover: It’s important, to maximise your tax refund

This is a big one! If you don’t have private hospital insurance and your income is more than $90,000 for singles or more than $180,000 for families, you will pay a minimum of 1% Medicare Levy Surcharge. That’s on top of the compulsory 2.0% Medicare levy paid by most taxpayers.

A basic private health cover plan can cost less than 1% of your gross income – less than the Medicare Levy Surcharge that you’ll pay if you have no insurance – and that’s why private cover may be worth a look. (Plus, private health coverage has some other advantages like shorter waiting times.)

Do your homework before taking out private health coverage. Make sure you get cover that’s appropriate for your circumstances and your finances. Here’s more info about private health coverage and your taxes.

Manage the timing of your tax-deductible expenses

If you know in advance that you’ll have considerable tax-deductible expenses, you may be able to choose which financial year you purchase them in. That can be important to make the most of your tax deductions, especially if you’re a sole trader.

A few examples:

  • if you have a large expense that is tax deductible and your income for that year is going to push you up to the next tax threshold, it may be best to purchase your item right before the end of the tax year. This will lower your taxable income for that year and, in some cases, could move you down into a lower tax bracket.
  • In a year when you take unpaid leave or a break from working and your income (and tax) is lower, it might be better to delay the purchase of larger tax-deductible items until later, when your income and tax jump higher. This will help you reduce the tax paid on the higher tax bracket and save you more money.
  • If you need to buy an expensive work-related item and it’s late in the financial year (the financial year is 1 July to 30 June) then buy that item in the financial year when your income will be higher. That helps to maximise the value of your tax deduction and improve your tax refunds.

Investments affect your taxes

Depending on your individual finances or circumstances, making an investment can also help you reduce tax considerably.

However, this is certainly not the case for everyone. Before you decide to invest, speak to your financial advisor, who will advise you if an investment will suit you. Remember, the investment should benefit you now AND into the future. There is no point saving a small amount of tax now if a poor investment ends up losing you your original capital in the long run.

Pay off your mortgage

In general, you are taxed on your savings (because of the interest income you earn on savings) so if you are an avid saver, you could face a hefty tax bill at the end of each year.

If you are buying your own home, you can kill two birds with one stone by shifting savings toward your home loan instead. You pay down your mortgage PLUS you are no longer taxed on that money.  The overpayment is usually still accessible as a re-draw, should you need to use some of the money in the future. However, watching your home loan get lower and lower is exciting and that can make you think twice before dipping in.

If you need to save money that you have easy access to, you can still reduce your mortgage interest costs by using an offset account.

It’s a good idea to talk to a financial advisor for help planning the best mortgage and personal finance management that suits your own circumstances.

Adjust your finances with your partner

If you have a partner, it’s possible to adjust your finances between you, to optimise your tax circumstances.

For example, if as a couple you have shared savings in a short-term account, earning some interest, it may be beneficial to invest that money in the name of the lowest income earner, because they will pay the least tax on the interest earned on that savings. Your financial advisor can help you make the most of this.

Selling Assets? Pay attention to the details

Do you plan to sell an asset that is subject to Capital Gains Tax (CGT)? One of the most common examples is a rental property or a house that has ever been rented out (including Airbnb).

If you sell an asset that triggers CGT, there are some things to consider.

How long have you owned the asset? If you have owned the asset for longer than twelve months you may be entitled to a 50% Capital Gains discount. If you haven’t owned the asset for at least twelve months, you will have to pay more CGT.

Does your income fluctuate? If so you may choose to sell the asset in a year you expect to earn a lower income, as your capital gain won’t have such an impact on your tax liability.

The ways that selling assets can affect your taxes can get a bit complicated – so it’s a good topic where you’d best ask a tax agent for help. Etax helps tens of thousands of people with this every year.