10 Ways to Legally Reduce Your Tax Bill

Almost every client who comes to see us asks some version of the same question: “How can I pay less tax?” It’s a fair question, and the answer is usually a combination of small habits rather than one big trick. Here are ten ways to legally minimise your tax, within the rules.

  1. Keep good records, all year round

Every deduction you claim needs a receipt to back it up if the ATO ever asks. Spend five or ten minutes a week filing receipts and invoices, physically or digitally, and keeping your logbook up to date if you claim vehicle expenses. Do this weekly and tax time stops being a scramble, and you won’t miss deductions you’re entitled to.

  1. Claim everything you’re entitled to

Claiming deductions is the single most effective way to reduce your taxable income. If you spent money to earn your income, including from a side job, keep the receipt and claim it, whether that’s work-related travel, tools, or a portion of home office running costs. If you’re not sure whether something qualifies, keep the receipt anyway and ask us; we’ll tell you.

  1. Donate to charity

Donations of $2 or more to a registered charity (a Deductible Gift Recipient) are tax deductible. You’ll get a receipt each time; add them up at tax time. Keep every receipt: without one, the ATO can disallow the claim, and in serious cases apply a penalty.

  1. Time your spending

If you know you have a large deductible purchase coming up, tools or equipment that’s genuinely work-related, think about which financial year to buy it in. If this year’s income is likely to push you into a higher bracket, buying before 30 June reduces this year’s taxable income at the higher marginal rate. If next year looks like the higher-income year, it may make more sense to wait. Our tax calculator can help you see which bracket you’re in.

  1. Watch the Medicare Levy Surcharge

If you don’t hold private hospital cover and your income is above the relevant threshold (it’s indexed each year, so ask us where it currently sits for your situation), you’ll pay an extra Medicare Levy Surcharge on top of the standard 2% Medicare levy. For many people in that income range, private hospital cover ends up cheaper than the surcharge.

  1. Invest, where it suits you

Investing can be an effective way to manage your tax position, but only when it makes sense for your broader financial goals. Don’t let the tax outcome drive a decision that isn’t otherwise right for you. Talk to a financial adviser before you commit.

  1. Consider income splitting with a spouse

If you have a spouse, jointly held interest-bearing accounts can sometimes be structured so more of the income is attributed to the lower-income partner, reducing the combined tax paid on that income.

  1. Don’t ignore small expenses

A $2 receipt and a $200 receipt add up the same way over a year. Keep every one: small, legitimate deductions compound into a meaningful refund.

  1. Think about timing when you sell an asset

Whether it’s an investment property or shares, think about capital gains tax before you sell. Assets held for more than 12 months usually qualify for a 50% CGT discount, and selling in a lower-income year can reduce the tax on the gain. (Note: for non-residents, property purchased after 8 May 2012 no longer qualifies for the 12-month discount.)

  1. Talk to a professional

A good tax agent doesn’t just save you time. They know the deductions people miss, what tends to attract ATO attention, and how to structure a return properly. Tax agent fees are themselves deductible the following year.

If any of this raises questions specific to your situation, get in touch. We’re happy to talk it through.