High-income Australians can legally reduce tax by up to $30,000 per year through strategic tax planning, yet most taxpayers claim less than $8,000 in deductions annually. The gap isn’t about dodgy offshore schemes or grey-area loopholes. It’s about understanding ATO-compliant strategies that wealthy Australians and experienced accountants use routinely but remain invisible to the average taxpayer.

The Australian tax system is progressive, meaning that tax rates increase as your income rises, and understanding how tax brackets, offsets, and deductions work is crucial for maximising your tax savings.

Even Albert Einstein admitted, “The hardest thing to understand in the world is the income tax”. If one of history’s greatest minds found tax confusing, you’re not alone in feeling overwhelmed. While paying tax is inevitable, effective tax planning strategies can help you minimise the amount you pay. The good news? Through effective tax planning, you can reduce the income tax you pay and retain more money in your pocket each financial year.​

This comprehensive guide reveals 11 legal tax minimisation strategies specifically for Australian taxpayers, complete with real dollar examples, implementation timelines, and compliance safeguards. Having a tax reduction plan and using tax planning strategies tailored to your situation is essential for maximising tax savings within the Australian tax system. Whether you’re earning $80,000 or $300,000, there are opportunities you’re likely missing.

What Is Your Income Tax Liability?

Your income tax liability is the amount of tax you owe on the income you earned in a financial year. In plain language, it’s your final tax bill. The Australian Taxation Office calculates this by taking your assessable income from all sources, subtracting allowable deductions, then applying the relevant marginal tax rates to determine what you pay.​

Understanding and managing your income tax paid can lead to more effective financial planning, helping you minimise your overall tax burden through strategic use of deductions, offsets, and exemptions.

In Australia, taxable income includes earnings from multiple sources:

• Employment income such as salaries, wages, bonuses, and commissions
• Investment income including interest, dividends, and capital gains
• Business profits from sole proprietorships, partnerships, and companies
• Rental income from investment properties
• Foreign income for Australian tax residents
• Other income, such as government payments or one-off windfalls, which can affect your total taxable income and tax position
• Other taxable income, including unused concessional contributions caps or additional income streams, which may increase your overall tax liability

Understanding how deductions reduce your assessable income before tax is calculated is crucial for effective tax planning. For example, if Sarah earns $90,000 and claims $8,000 in legitimate deductions, she’s taxed on $82,000 instead of the full $90,000, saving approximately $3,760 in tax (assuming a 47% marginal rate on that portion).​

Current Tax Rates and Brackets (2025-26)

Following the Stage 3 tax cuts implemented from 1 July 2024, Australian tax rates have been restructured:​

Taxable Income	Tax Rate
$0 – $18,200	0%
$18,201 – $45,000	16%
$45,001 – $135,000	30%
$135,001 – $190,000	37%
$190,001+	45%

In addition to income tax, most Australians pay a 2% Medicare levy. High-income earners without private hospital insurance also face the Medicare Levy Surcharge of 1.0-1.5% on total income if earning over $90,000 (singles) or $180,000 (families).

Understanding how much of your income you need to pay income tax on is crucial, as planning ahead can help minimise the amount of income subject to tax and potentially reduce your overall tax bill.

An individual earning $180,000 pays approximately $51,667 in income tax plus $3,600 Medicare levy, resulting in a total tax burden of $55,267 before any deductions or offsets. One of our clients earning this amount said, “I thought I was comfortably in one tax bracket, but my annual bonus pushed me into the next without realising, and suddenly I was paying thousands more than expected.”​

Legal Tax Reduction Strategies to Lower Your Taxable Income

1. Claim Tax Deductions for Work-Related Expenses

When investigating how to reduce taxable income, the first place to start is the tax deductions you qualify for. Work-related deductions play a crucial role in reducing taxable income, allowing you to keep more of your earnings through legal tax planning strategies. According to the Australian Tax Office (ATO), individuals are allowed to claim deductions for work-related expenses.​

Employees are entitled to claim expenses such as:

• Home office expenses using either the fixed rate method (67 cents per hour) or actual cost method
• Self-education expenses directly related to current employment
• Tools, equipment, and other assets under $300 (or depreciation for items over $300)
• Vehicle and travel expenses for work-related travel (not commuting)
• Clothing expenses for compulsory uniforms or protective equipment
• Professional memberships, subscriptions, and union fees

If your eligible deductible expenses exceed the standard deduction amount, itemising your deductions may provide a greater benefit and further assist in reducing taxable income.

The golden rule for claiming work-related expenses is that the expense must be directly related to earning your assessable income. You cannot claim personal expenses or costs your employer has reimbursed. Additionally, you must have records to substantiate your claim – receipts, bank statements, logbooks, and diary entries kept for five years from the lodgement date.

Understanding how deductions can reduce taxable investment income from properties is also essential, as expenses such as loan interest, property management fees, council rates, and depreciation can significantly lower your tax liability.​

One client admitted, “I claimed my entire internet bill as a work expense when only 30% was genuinely work use. The ATO amended my return during a review, and I learned the hard way that accuracy matters more than maximising claims.”

2. Reduce Taxable Income Through Superannuation Contributions

Maximising superannuation contributions is one of the most effective methods to reduce taxable income in Australia. Concessional (before-tax) contributions to superannuation are taxed at just 15% within the fund, compared to marginal personal tax rates reaching 47%. This tax arbitrage creates immediate, quantifiable savings for Australian taxpayers.

Superannuation contributions are a tax-effective strategy for high-income earners to reduce their taxable income and save on taxes.

The concessional contributions cap is $30,000 for the 2025-26 financial year, which includes your employer’s compulsory superannuation guarantee contributions. This means if your employer contributes $11,400 (11.5% of $100,000 salary), you can make additional personal deductible contributions of up to $18,600 to reach the cap.​

Two primary methods enable you to reduce taxable income through superannuation:

Salary sacrificing into superannuation involves arranging with your employer to direct pre-tax salary into your super fund. For example, a person earning $150,000 who salary sacrifices $15,000 additional to super will pay only $2,250 in contributions tax (15%) within the super fund, compared to $7,050 in personal income tax (47%) if received as salary – a net saving of $4,800.​

Personal deductible contributions allow you to make personal super contributions using after-tax money to your super fund and claim a tax deduction. You must submit a Notice of Intent to Claim form to your super fund before claiming the deduction. These personal super contributions are taxed at 15% in the super fund, similar to salary sacrifice arrangements.​

Superannuation contributions not only reduce your taxable income and save tax, but also help you build your retirement savings by taking advantage of concessional tax rates and compounding growth over time.

High-income earners above $250,000 should be aware of Division 293 tax, which applies an additional 15% tax on concessional contributions (total 30% instead of 15%). However, even at 30%, this remains significantly lower than the 47% marginal rate. One high-earning client told us, “I avoided super contributions because I heard about the extra tax, but when my accountant showed me the numbers, paying 30% was still far better than 47%.”​

Unused Concessional Cap Carry-Forward Rules

From 1 July 2018, individuals with a total superannuation balance below $500,000 can carry forward unused concessional contribution amounts for up to five years. This provision enables taxpayers who had gaps in their super contributions to make larger deductible contributions in subsequent years.​

For example, someone who contributed nothing to super in FY2021, FY2022, FY2023, and FY2024 (when caps were $25,000, $27,500, $27,500, and $27,500 respectively) can contribute up to $137,500 in FY2025 by using $107,500 of carried-forward unused caps plus the current year’s $30,000 cap. Those interested in asset protection or tax management strategies might consider structures such as discretionary trusts.​

A person earning $327,500 who makes this $137,500 contribution can save up to $64,625 in personal income tax. Making a large concessional contribution in a single year can significantly reduce your taxable income, especially when combined with other taxable income sources, leading to greater overall tax savings. While the superannuation fund will pay $20,625 in contributions tax (15%) and potentially $11,625 in Division 293 tax (extra 15% on the portion pushing income above $250,000), the net benefit to the individual is still substantial. One client who changed careers mid-life said, “I had several years where I didn’t maximise super. Being able to catch up in one year when I received an inheritance was genuinely transformative for my retirement planning.”​

3. Make Charitable Donations to Deductible Gift Recipients (DGRs)

You can reduce your taxable income by donating to a deductible gift recipient (DGR) organisation. A DGR is an ATO-recognised organisation or fund that can receive tax-deductible gifts.​

You are allowed to claim a tax deduction depending on the type of donation:

• Money donations: The contribution or gift must be more than $2, and you must keep a record (receipt or bank statement)
• Property or shares: See the ATO’s special rules relating to property and share donations, which have specific valuation requirements
• Cultural gifts: Donations under the Heritage and Cultural programs have particular circumstances where they are deductible

The tax benefit of charitable donations depends on your marginal tax rate. A $100 donation saves $47 in tax if you’re in the top tax bracket (47%), effectively costing you only $53 out of pocket. However, for someone in the 30% tax bracket, the same $100 donation saves $30 in tax.

Strategic giving involves bunching donations in high-income years to maximise the marginal rate benefit. For instance, if you typically donate $5,000 annually but expect an unusually high income this year due to a bonus or asset sale, making two years’ worth of donations ($10,000) in the high-income year maximises the tax saving.​

It’s important to verify that an organisation is registered as a DGR on the ATO’s online register before claiming deductions. Political parties, GoFundMe campaigns, and most overseas charities are NOT deductible unless specifically listed as DGRs.

4. Claim Tax Deductions for Managing Your Tax Affairs

Individuals can claim a tax deduction for the cost of managing their tax affairs, including hiring an accountant. This often-overlooked deduction can reduce your taxable income by hundreds or even thousands of dollars annually.​

Tax-deductible expenses for managing your tax affairs include:

• Accountant fees for tax return preparation and lodgement
• Tax planning advice relating to earning assessable income in the current financial year
• Travel costs incurred to visit your accountant or tax adviser
• Costs of managing tax affairs, including litigation costs related to tax disputes
• Interest charged by the ATO on tax debts
• Software subscriptions for tracking investments or calculating tax (such as Sharesight for share portfolios)

However, not all advice-related expenses are deductible. Generally NOT deductible are costs for establishing trusts, companies, or SMSFs; initial financial plans for acquiring new investments; estate planning and will preparation; and advice relating to non-income-producing assets.​

A practical tip is to ask your accountant for a split invoice showing deductible versus non-deductible components. For example, if you pay $3,000 for comprehensive financial advice, the accountant might allocate $1,800 to tax return preparation and tax strategy (deductible) and $1,200 to establishing a family trust structure (not deductible). This documentation supports your claim if the ATO reviews your return.​

Since accountant fees are tax-deductible, a good accountant typically identifies opportunities worth five to ten times their fee. This makes professional tax advice essentially self-funding for most taxpayers with moderately complex affairs.​

5. Use Salary Packaging to Reduce Taxable Income

Salary packaging, also commonly known as salary sacrificing/), involves arranging with your employer to package your salary into certain benefits. Essentially, you agree to receive less income after tax in exchange for your employer paying for certain benefits from your salary before tax.​

Examples of commonly packaged benefits include:

• Motor vehicle payments (lease or loan repayments and running costs)
• Home loan or personal loan repayments
• School fees for children’s education
• Laptops, tablets, and mobile phones
• Home phone and internet costs

For example, Joan earns a salary of $100,000. She enters into an agreement with her employer to package her salary so that she receives $84,000 as income, while $15,000 is paid towards her car and $1,000 towards other expenses. Joan’s taxable income is reduced to $85,000, resulting in less income tax payable.​

The tax savings from salary packaging depend on your marginal tax rate and whether the packaged items attract Fringe Benefits Tax (FBT). Some items like portable electronic devices, work-related tools, and protective clothing may be exempt from FBT under certain conditions.

Salary packaging can also impact how your other income is calculated for tax purposes, as it may reduce your overall assessable income and affect eligibility for certain deductions or offsets.

Employees working for charities with FBT exemption status can access particularly generous salary packaging, with up to $15,900 of living expenses paid tax-free. These expenses can include rental payments, mortgage payments, utility bills, rates notices, and general living expenses.​

Not all employers offer salary packaging arrangements, and some charge administrative fees that can reduce or eliminate the tax benefit. Additionally, packaging reduces your take-home cash, which may affect borrowing capacity for home loans. One client noted, “I packaged my car through work, which saved tax, but when I applied for a mortgage the following year, the bank assessed my lower take-home pay, not my pre-packaged salary.”

6. Prepay Deductible Expenses Before June 30

Prepaying some tax-deductible expenses can bring the deduction forward to the current financial year. By using a strategy to pre pay expenses, you can accelerate tax deductions and reduce taxable income for the current year. Prepaying expenses involves paying certain deductible costs in advance—such as interest or insurance premiums—to optimise your tax outcome.

The ATO allows prepayments for up to 12 months to be immediately deductible. This means if you prepay expenses on 30 June 2026 for the period to 30 June 2027, you can claim the full deduction in your 2025-26 tax return rather than waiting until 2026-27.​

Prime candidates for prepayment include:

• Interest on investment property loans or margin lending facilities
• Income protection insurance premiums (not inside super)
• Professional subscriptions and memberships renewing in July
• Accounting and tax agent fees for the following year
• Property management fees and landlord insurance

Small business owners can also benefit from the instant asset write-off, which allows immediate deduction of eligible asset purchases. This improves cash flow and reduces taxable income by enabling businesses to claim the full cost of assets in the year they are purchased.

For example, prepaying $8,000 of investment property loan interest in June 2026 brings the deduction forward, saving $3,760 immediately for a taxpayer in the 47% bracket. Without prepayment, that deduction wouldn’t be available until the following tax return.​

Prepayment strategies work best when you expect next year’s taxable income to be lower than the current year. Situations include taking parental leave, sabbatical, reducing work hours, or retirement. In these cases, claiming deductions in the high-income year when your marginal rate is higher maximises tax savings.​

However, prepaying accelerates cash outflow, so you must ensure sufficient liquidity to meet the payment without creating financial stress. Additionally, the prepayment must provide a genuine future benefit and not be an artificial arrangement solely designed to obtain a tax advantage, as this could trigger ATO scrutiny under Part IVA anti-avoidance provisions.

Note that the 12-month rule does not apply to all expenses. For example, prepaying more than 12 months of deductible expenses means only the portion covering the next 12 months is immediately deductible, with the remainder claimed in the following year.

7. Obtain Private Health Insurance to Avoid Medicare Levy Surcharge

Using private health insurance can help avoid the Medicare Levy Surcharge for high-income earners. The ATO introduced the private health insurance rebate and surcharge to encourage middle to high-income earners to reduce their dependence on the public health system and make the private healthcare industry more sustainable.​

The Medicare Levy Surcharge applies if you don’t have private hospital insurance and earn more than $90,000 (singles) or $180,000 (families). The surcharge is charged in addition to the compulsory 2% Medicare levy that most taxpayers pay.​

Surcharge rates are tiered based on income:​

Income Threshold (Singles)	Income Threshold (Families)	Surcharge Rate
$90,001 – $105,000	$180,001 – $210,000	1.0%
$105,001 – $140,000	$210,001 – $280,000	1.25%
$140,001+	$280,001+	1.5%

For a single person earning $250,000, the Medicare Levy Surcharge would be $3,750 (1.5% of total income) if they don’t hold private hospital insurance. Basic hospital cover might cost $2,000-$2,500 annually, making insurance cheaper than paying the surcharge while also providing health benefits.​

The eligibility criteria to receive the private health insurance rebate include being an Australian citizen, having a taxable income of less than $140,000 as a single or $280,000 as a family, holding a complying health insurance policy, and having a Medicare card.​

There are two ways you can claim the health insurance rebate: as a discount on your premium paid directly by your insurer, or as a tax offset when lodging your tax return. If you’re looking for ways on how to reduce taxable income, claiming it through your tax return can help you avoid the Medicare Levy Surcharge and benefit from a tax refund.​

One of our clients earning $95,000 said, “I delayed getting hospital cover, thinking I’d save money. I ended up paying $1,400 in Medicare Levy Surcharge that year, which was completely avoidable. Now I have the cover by June 30 each year.”

8. Claim Capital Gains Tax Discounts on Asset Sales

Capital gains tax (CGT) is a tax on the profit made from selling an asset. In Australia, CGT applies to assets acquired after 20 September 1985. Unlike some countries, Australia does not have a separate tax rate for capital gains. Instead, capital gains are added to your taxable income and taxed at your personal tax rate.​

Individuals can claim a 50% capital gains tax discount if the asset is held for more than 12 months. This means only half of the capital gain is added to your taxable income. For example, if you make a capital gain of $100,000 on an asset held for 13 months, only $50,000 is added to your assessable income, compared to the full $100,000 if the asset was sold at 11 months.

For complying superannuation funds, a 33.33% discount is available for assets held for more than 12 months. Companies, however, are not eligible for the CGT discount and must include the full amount of any capital gain in their assessable income.​

Timing the sale of assets can significantly impact capital gains tax liability. If you’re planning to sell an asset that’s close to the 12-month ownership mark, waiting until after the 12-month anniversary can halve the taxable gain. Additionally, timing asset sales to coincide with years of lower overall income reduces the marginal tax rate applied to the capital gain. With strategic planning and the use of available exemptions, such as those for small business owners and active business assets, you can achieve substantial tax savings by minimising your overall tax liability.

Other CGT strategies include:

• Tax-loss harvesting: Realising capital losses by selling underperforming investments to offset capital gains from profitable assets​
• Small business CGT concessions: Small business owners can access a 15-year exemption for active business assets, meaning assets used in an active business for at least 15 years can be sold CGT-free if the owner is 55 or older and retiring. By planning the timing of asset sales, small business owners can maximise these concessions and reduce their tax liabilities. Other concessions include a 50% active asset reduction, retirement exemption ($500,000 lifetime cap), and CGT rollover relief​
• Strategic contract signing: The contract date, not settlement date, determines when CGT is triggered, allowing you to time gains into specific tax years​

Trustees can distribute capital gains to beneficiaries with capital losses or those who qualify for the capital gains tax 50% discount. This flexibility within discretionary trusts enables significant tax savings by allocating gains to family members with the lowest marginal tax rates or offsetting losses.​

The actual amount of tax paid on a capital gain depends on the individual’s overall taxable income and applicable tax rate. This system ensures capital gains are taxed progressively, which aligns with Australia’s income tax structure.​

9. Utilise Negative Gearing on Investment Properties

Negative gearing allows individuals, including property investors, to deduct losses from investment expenses against taxable income. Property investors can leverage negative gearing and related deductions, such as depreciation and loan interest, to optimize their tax positions and maximize overall investment returns. In property investment, negative gearing occurs when rental property expenses (loan interest, maintenance, rates, insurance) exceed rental income, creating a deductible loss that offsets other assessable income like salary or business profits.​

Tax-deductible investment expenses include:

• Loan interest on borrowings to acquire the investment property
• Property management fees and letting agent commissions
• Council rates, water rates, and land tax
• Building insurance and landlord insurance premiums
• Repairs and maintenance (not initial improvements or renovations)
• Depreciation on building structure (capital works deduction at 2.5% over 40 years)
• Depreciation on plant and equipment (hot water systems, carpets, blinds, appliances)

For example, an investment property generating $33,800 annual rent with $35,000 in loan interest and $10,000 in other expenses creates an $11,200 loss. For a taxpayer in the 47% marginal bracket, this loss saves $5,264 in tax by reducing their assessable income.​

Obtaining a depreciation schedule from a qualified quantity surveyor identifies claimable plant, equipment, and capital works deductions that investors often miss. These schedules typically cost $500-$800 but can identify $5,000-$15,000 in annual deductions for the first several years of ownership.​

Negative gearing works best as part of a long-term capital growth strategy over seven to ten years. The annual tax savings help subsidise the property’s holding costs while capital appreciation builds wealth. However, negative gearing should never be the sole reason to invest in property. A common mistake is overleveraging for tax benefits without considering cash flow sustainability, especially if interest rates rise or tenants vacate.

The timing of income and expenses can be strategically managed to optimise tax outcomes. For instance, prepaying 12 months of deductible property expenses like insurance and rates before June 30 accelerates deductions into the current year, while deferring rental income collection until after June 30 delays income recognition to the following year.​

10. Maintain Accurate Records and Documentation

Keeping accurate records is essential for claiming tax deductions and ensuring compliance with tax regulations. In Australia, the Australian Taxation Office (ATO) requires individuals and businesses to keep records for at least five years from the date you lodge your tax return.

Records you should maintain include:

• Income statements, payment summaries, salary sacrifice agreements, and receipts for all income sources
• Expense records, including receipts, invoices, and bank statements for all claimed deductions
• Bank statements and loan documents showing interest paid
• Investment record,s including purchase contracts, sale contracts, dividend statements, and capital gains calculations
• Vehicle logbooks showing 12-week representative periods of work-related travel
• Home office records, including floor plans, calculations of work area percentage, and utility bills
• Diary entries documenting work-related travel and work-from-home hours

Digital record-keeping is fully acceptable and often more convenient than paper records. Photographing receipts using smartphone apps, cloud storage solutions like Dropbox or Google Drive, and dedicated receipt-tracking applications like Dext or Receipt Bank help organise documentation and ensure nothing is lost.​

Good record-keeping provides several benefits:

• Ensures accurate tax returns and minimises errors that trigger ATO reviews
• Maximises legitimate tax deductions you’re entitled to claim
• Provides evidence in case of an ATO audit, significantly reducing stress and potential penalties
• Enables faster tax return preparation, reducing accounting fees

The reality of ATO audits is that good records mean confident claims, while poor records result in denied deductions, amended assessments, and potential penalties. One accountant colleague noted, “Clients who track their expenses monthly and maintain organised records claim approximately 40% more legitimate deductions than those who scramble to reconstruct expenses in June with incomplete documentation.”​

The ATO increasingly uses data-matching technology, comparing your claims against industry benchmarks and cross-referencing with third-party data. Claims that fall outside typical patterns for your occupation and income level trigger reviews, making accurate documentation more critical than ever.​

11. Use Discretionary Family Trusts for Income Distribution

Transferring assets into a discretionary family trust can lead to overall lower taxes. A trust is discretionary in nature because the trustee can independently exercise decision-making regarding the distribution of income and capital among beneficiaries.​

Discretionary Family Trusts can redistribute income to family members on lower tax brackets, reducing the overall tax burden. For example, a trustee can distribute rental income or business profits to adult children studying full-time (who have low personal income) or a spouse not in paid employment, utilising their lower marginal tax rates to reduce total family tax liability.​

High-income earners often leverage Discretionary Trusts to redistribute income to family members in lower tax brackets. Trustees can distribute capital gains to beneficiaries with capital losses or those who qualify for the capital gains tax 50% discount. In each instance, the results are lower overall tax compared to the high-income earner personally deriving all income at 47% marginal rates.

For example, a family trust holding an investment property generates $40,000 annual rental income and makes a $200,000 capital gain upon sale. If the high-income trustee earning $250,000 personally received this income, the tax would be approximately $112,900 over five years. However, by distributing the rental income to two adult children at university ($20,000 each annually) and the capital gain to the children in the sale year, the family’s total tax reduces to approximately $2,076, saving $110,824.​

Advanced strategies include distributing to a “bucket company” (corporate beneficiary) taxed at 25-30%, allowing profits to be retained within the corporate structure for future investment without immediate 47% personal tax. This strategy works particularly well for business owners who want to accumulate capital for future expansion or investment opportunities.

However, discretionary trusts have significant considerations; seeking guidance from professionals specializing in tax services for small businesses and contractors can help you navigate these complexities.

• Establishment costs: $2,000-$5,000 for legal documentation and ATO registration​
• Annual compliance costs: $1,500-$3,000 for accounting, tax returns, and administration​
• Land tax implications: Trusts lose the land tax-free threshold in some states (NSW charges 1.6% on all land value from dollar one)​
• Timing constraints: Trusts must be established BEFORE purchasing assets or commencing business; transferring existing assets into a trust triggers capital gains tax​
• Distribution requirements: Income must be distributed by 30 June each year via trustee resolutions, or it’s taxed at the top marginal rate within the trust​

For information on discretionary trusts and their advantages, you can access our essential family trust guide.

One client reflected, “We established a family trust when purchasing our first investment property. Over 15 years, distributing rental income and eventual capital gains to our children during their university years saved us over $200,000 in tax. The annual accounting fees were more than offset by the tax savings from the first year onwards.”

Tax Offsets vs Tax Deductions: Understanding the Difference

Understanding the difference between tax deductions and tax offsets is crucial for effective tax planning. Tax deductions reduce your taxable income, while tax offsets directly reduce the tax you owe.

For example, a $1,000 tax deduction reduces your taxable income by $1,000. If you’re in the 47% marginal tax bracket, this saves $470 in tax. However, a $1,000 tax offset reduces your actual tax bill by the full $1,000 regardless of your income level.​

Common tax offsets available to Australian taxpayers include:

• Low Income Tax Offset (LITO): Automatically applied for earners under $66,667, worth up to $700​
• Low and Middle Income Tax Offset (LMITO): Worth up to $1,500 for earners under $126,000 (note: this offset ended 30 June 2022, no longer available)​
• Small Business Income Tax Offset: Up to $1,000 for small business income under $5,000​
• Spouse superannuation contribution offset: $540 if contributing to a low-income spouse’s super (spouse earning less than $37,000)​
• Private health insurance offset: Percentage rebate based on income tier​
• Senior Australians and Pensioners Tax Offset (SAPTO): For eligible seniors and pensioners​

Franking credits attached to Australian company dividends function similarly to tax offsets. These represent company tax already paid on profits distributed as dividends. If your personal tax rate is lower than the 30% company tax rate, you receive a refund of the excess franking credits when lodging your tax return.​

Tax offsets directly reduce the tax owed, making them generally more valuable than deductions of the same dollar amount. However, most offsets are means-tested or automatically applied based on your circumstances, whereas deductions require active claiming and substantiation.​

Advanced Tax Strategies for High-Income Earners

Timing Income and Asset Sales Strategically

The timing of income and expenses can be strategically managed to optimise tax outcomes, such as deferring income to a year with lower expected earnings. Tax planning strategies play a crucial role in timing income and asset sales, allowing individuals and businesses to optimise their tax liabilities and achieve better financial results. Delaying income until after 30 June can help minimise taxable income for the current financial year.​

Strategies for timing income include:

• Deferring invoicing: Self-employed individuals and businesses can delay issuing invoices until after 30 June, pushing income recognition to the following financial year
• Deferring bonuses: Employees can request employers pay discretionary bonuses in July rather than June
• Delaying trust distributions: Trustees can distribute income in the first week of July rather than late June if beneficiaries expect lower income next year
• Timing rental income: Delaying rental collection by a few days across the 30 June line can shift income to the next year

Conversely, accelerating deductions by bringing forward expenses to June before the tax year closes maximises deductions in the current year. This works best when your current year income is higher than expected next year.​

A real scenario illustrates the power of timing: An executive expecting $300,000 income this year but only $80,000 next year (due to a career break) delays a $400,000 capital gain asset sale by six months. By selling in the lower-income year, the capital gain ($200,000 after 50% discount) is taxed at an average rate of approximately 32% rather than 47%, saving $31,720 in tax.​

Timing asset sales to coincide with specific tax years requires careful planning, as the contract date (not settlement date) determines when CGT is recognised. Signing a contract on 29 June versus 2 July can shift a six-figure tax liability between financial years.​

Business Structure Optimisation

The structure through which you operate your business or hold investments significantly impacts your tax liability. Different structures have different tax rates and flexibility:​

• Sole trader: All income taxed at personal marginal rates (up to 47%)
• Company: Flat 25% tax rate for base rate entities (aggregated turnover under $50 million), or 30% otherwise​
• Trust: Distributes income to beneficiaries who are taxed at their individual marginal rates, enabling income splitting​
• Self-managed super fund (SMSF): Assets in accumulation phase taxed at 15%, assets in pension phase taxed at 0%​

Small business owners can leverage the right business structure to minimise tax liabilities by accessing specific tax concessions and optimising asset management strategies.

High-income professionals often establish a discretionary trust with a corporate beneficiary. The trust distributes business income or investment returns to the corporate beneficiary, which is taxed at 25-30% rather than the 47% personal rate. Profits retained in the company can be invested in shares, property, or other assets, with investment earnings continuing to be taxed at company rates until eventually distributed as dividends.​

A medical practice operated through a discretionary trust structure with a corporate beneficiary can retain $100,000 of profits, paying $25,000 company tax, leaving $75,000 for reinvestment. If the doctor received that income personally, they would pay $47,000 tax, leaving only $53,000 after tax – a $22,000 difference.​

However, structure optimisation must occur BEFORE commencing business or purchasing assets. Restructuring existing businesses or transferring assets between structures triggers capital gains tax, stamp duty, and potentially goods and services tax (GST), often making retrospective restructuring prohibitively expensive.​

Division 293 Tax Management for High Earners

Division 293 tax applies when income plus concessional super contributions exceed $250,000. This imposes an additional 15% tax on super contributions (total 30% instead of 15%), designed to reduce the tax concession for high-income earners.​​

Despite the extra tax, superannuation contributions remain tax-effective even for those affected by Division 293. Paying 30% on super contributions is still significantly better than paying 47% personal marginal tax rate on the same income.​

Strategies to manage Division 293 tax include:

• Income timing: Where possible, defer income to keep below the $250,000 threshold in some years
• Spouse contributions: Contribute to your spouse’s super instead if their income is below $250,000, avoiding Division 293 on those contributions
• Non-concessional contributions: Make after-tax contributions to super (up to $120,000 cap) which don’t attract contributions tax or Division 293
• Strategic splitting across years: Rather than maximising contributions every year, alternate years of higher and lower contributions based on expected income

One high-earning client told us, “I earned $245,000 and made a $20,000 super contribution. I didn’t realise that the $20,000 contribution counted in the Division 293 calculation, pushing my combined income to $265,000. This triggered $2,250 in additional tax I hadn’t budgeted for. Now I model the calculation before making contributions.”

Common Tax Reduction Mistakes to Avoid

Even well-intentioned taxpayers make errors that reduce the effectiveness of tax strategies or trigger ATO attention:

Overclaiming without evidence: Claiming deductions without proper substantiation triggers ATO audits and results in denied claims, amended assessments, penalties, and interest charges. The ATO’s data-matching capabilities compare your claims against occupation benchmarks, flagging outliers for review.​

Setting up structures retrospectively: You can’t transfer existing assets to a newly established trust without triggering a capital gains tax event. Trusts must be established BEFORE acquiring assets or commencing business operations.​

Ignoring Division 293: High earners unknowingly exceeding the $250,000 threshold (including concessional super contributions) receive unexpected tax bills when Division 293 assessments arrive.​

Missing June 30 deadlines: Superannuation contributions must be RECEIVED by your super fund by 30 June, not just initiated by you. BPAY transfers can take two to three business days, meaning contributions sent on 29 June might not arrive until July, counting for the following financial year and potentially causing cap breaches.​

Prepaying more than 12 months: Only 12-month prepayments are immediately deductible. Prepaying 24 months of expenses means you can only claim 12 months in the current year, with the remainder claimed next year.​

Salary sacrificing without verification: Some employment awards or enterprise agreements don’t permit salary sacrificing, making arrangements invalid. Additionally, some employers charge administrative fees that negate or reduce tax benefits.​

Confusing deductions with tax saved: Claiming a $100 deduction doesn’t save $100 in tax. It saves tax at your marginal rate (47% = $47 saved, 30% = $30 saved). Spending $100 to save $47 still costs you $53 out of pocket.

One client admitted, “I claimed my entire home as office space, thinking it would maximise my deduction. The ATO reviewed my floor plan and work-from-home records and determined only 12% was genuinely used exclusively for work. I had to repay $4,300 in tax plus interest and learned that aggressive overclaiming isn’t worth the risk.”

Tax Planning Timeline: When to Take Action

Effective tax planning is a year-round activity, not a June panic. Strategic taxpayers follow a structured timeline:​

July to September

• Review your previous year’s tax return for missed opportunities and errors
• Set up salary sacrificing arrangements with your employer for the new financial year
• Establish structures (trusts, companies, SMSFs) if planning major investments or business commencement
• Review and update your tax strategy with your accountant based on any changed circumstances

October to March

• Track deductible expenses monthly using apps or spreadsheets – don’t wait until June
• Make quarterly super contributions to spread cash flow impact across the year
• Review your investment portfolio for tax-loss harvesting opportunities (selling underperforming assets to realise losses)
• Monitor your income to forecast whether you’ll exceed tax thresholds (Medicare Levy Surcharge, Division 293)

April to June

• Finalise superannuation contributions (must be RECEIVED by fund by 30 June, not just sent)
• Prepay up to 12 months of deductible expenses (interest, insurance, subscriptions, memberships)
• Time asset sales to optimise capital gains tax treatment (waiting for 12-month discount, or delaying to next financial year)
• Ensure trust distribution resolutions are completed by 30 June to allocate income to beneficiaries
• Book accountant appointments early (April-May) rather than waiting until the October rush when accountants are overwhelmed

The income tax year in Australia runs from 1 July to 30 June, making the timing of income and expenses critical for tax liability. Strategic taxpayers think across multiple financial years, planning career breaks, major asset sales, and large expenses around these dates to optimise outcomes.​

How Box Advisory Services Can Help You Reduce Tax

At Box Advisory Services, our experienced team of accountants can help you navigate tax reduction strategies and prepare your tax return with confidence. We provide:​

Personalised tax planning based on your specific income level, asset holdings, family situation, and financial goals. No two taxpayers are identical, so cookie-cutter advice never delivers optimal results.

Compliance assurance ensuring all strategies withstand ATO scrutiny and align with current legislation. We stay updated on tax law changes, ATO rulings, and compliance requirements so you don’t have to.​

Structure advice determining whether a trust, company, or SMSF suits your circumstances, and helping establish these structures correctly and cost-effectively.​

Ongoing support through quarterly reviews rather than just annual tax returns. Tax planning is most effective when integrated throughout the year, not retrofitted in June.

Melbourne-based expertise understanding Victorian property market dynamics, state-specific land tax thresholds, stamp duty considerations, and local opportunities that interstate accountants might miss.

To find out how we can help you reduce tax legally and maximise your after-tax wealth, book a free consultation with us to assess your situation.

Frequently Asked Questions About Reducing Tax in Australia

Q1: How much tax can I realistically save with proper planning?

It depends on your income level and current situation. Individuals earning $80,000 to $120,000 typically save $2,000 to $5,000 annually through maximising deductions and superannuation contributions. High-income earners ($190,000 and above) can save $15,000 to $30,000 through structure optimisation, trust distributions, and timing strategies. The key factor is whether you’re currently using available strategies or leaving opportunities unclaimed.

Q2: What’s the difference between tax avoidance and tax minimisation?

Tax minimisation is legal: using ATO-approved deductions, offsets, and structures to reduce your tax bill. Tax avoidance involves schemes where the sole or dominant purpose is to avoid tax, caught by Part IVA anti-avoidance provisions. Claiming legitimate work-from-home expenses is minimisation; setting up artificial arrangements with no commercial purpose is avoidance.

Q3: Should I use a family trust to reduce tax?

Family trusts work best when you have family members in lower tax brackets (adult children, non-working spouse) to receive distributions, and when investing in assets producing ongoing income. They cost $2,000 to $5,000 to establish and $1,500 to $3,000 annually to maintain, so you need sufficient income-splitting benefit to justify costs. Trusts can’t be set up retrospectively for existing assets without triggering capital gains tax.

Q4: Is it worth paying an accountant, or can I do my own tax return?

Simple tax situations (single employer, standard deductions) can be self-lodged through myTax. However, accountant fees are tax-deductible, and a good accountant typically identifies opportunities worth five to ten times their fee. If you’re self-employed, have investment properties, own a business, or earn over $100,000, professional advice usually pays for itself through strategies you wouldn’t know to implement.​

Q5: Can I claim my home office if I work from home occasionally?

Yes, using one of two methods: fixed rate method (67 cents per hour covering all expenses) or actual cost method (claiming your portion of rent or mortgage interest, utilities, furniture depreciation). You need records showing hours worked from home. If you have a dedicated home office used exclusively for work, you can claim occupancy expenses. If it’s a shared space (kitchen table), you can only claim running expenses when actually working.​

Q6: What happens if I contribute too much to superannuation?

Excess concessional contributions (over the $30,000 cap) are included in your personal taxable income and taxed at your marginal rate, with a credit for the 15% already paid in super. You can elect to withdraw the excess or leave it in super as a non-concessional contribution (subject to the $120,000 non-concessional cap). The ATO issues an excess contributions determination, and you have 60 days to elect withdrawal.​

Q7: How do I know if a donation is tax-deductible?

Check if the organisation is a registered Deductible Gift Recipient (DGR) on the ATO’s online register. Cash donations over $2 require a receipt. Property and shares have special valuation rules. Political parties, GoFundMe campaigns, and overseas charities are usually NOT deductible unless specifically listed as DGRs.​

Q8: When is the deadline for super contributions to count for this financial year?

Contributions must be RECEIVED by your super fund by 30 June, not just processed by you. BPAY transfers can take two to three business days. The fund’s timestamp determines which financial year the contribution counts towards, not when you initiated payment. Many people miss this crucial detail and their contribution counts for the following year, potentially exceeding caps or missing their intended tax deduction.​

Your Next Steps to Reduce Tax Legally

Australian taxpayers have multiple legal strategies available to reduce tax liability, from straightforward deductions to advanced structure optimisation. The difference between those who minimise tax effectively and those who overpay often comes down to knowledge and implementation, not income level.

The cost of inaction compounds annually. Unclaimed deductions, missed superannuation opportunities, and suboptimal structures cost Australian taxpayers thousands of dollars every year they remain unaddressed. Even small improvements to your tax strategy can deliver substantial benefits over time.​

Effective tax planning is year-round activity, not a June 30 scramble. By implementing the strategies outlined in this guide and working with experienced professionals, you can reduce your tax liability whilst maintaining full compliance with Australian tax laws.​

Book a free consultation with Box Advisory Services today to assess your specific situation and discover which strategies, such as negative gearing, will deliver the greatest benefit for your circumstances. Our team has helped hundreds of clients legally reduce their tax and maximise their after-tax wealth.

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Disclaimer: Please note that every effort has been made to ensure the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to contractors and small businesses. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal or tax advice. You should, where necessary, seek professional advice for any legal or tax issues raised in your business affairs.