High-income earners in Australia often find themselves paying the highest marginal tax rates in the country. With earnings over $190,000 attracting a 45% marginal tax rate, plus the 2% Medicare Levy and possibly the Medicare Levy Surcharge, it’s no surprise that tax planning becomes a priority.

Whether you’re a doctor, senior executive, or tech entrepreneur, understanding how to structure your finances more efficiently can significantly reduce your annual tax bill and free up more funds for investment, retirement, or personal goals.

Here’s a clear, practical look at what you can do now and into the future to legally reduce your tax burden.

How Does the Australian Tax Landscape Work in 2025?

Australia’s tax system is progressive, meaning the more you earn, the higher the percentage of tax you pay on each additional dollar. In 2025, income above roughly $190,000 falls into the top marginal tax bracket, taxed at 45%, not including the 2% Medicare Levy.

That means someone earning $220,000 would see a portion of their income taxed at 47%—nearly half.

In addition, those without appropriate private health insurance may be subject to the Medicare Levy Surcharge (MLS). For singles earning above $97,000 or couples above $194,000, this surcharge ranges from 1% to 1.5% of income. This could add thousands to the annual tax bill for a high-earning professional without private cover.

It’s completely legitimate to arrange your affairs in a way that reduces tax, provided it’s within the boundaries of the law. The line between legal tax planning and tax evasion lies in how accurately and honestly financial activities are reported.

Keeping up to date with legislative changes—such as the 2024 adjustments to income tax brackets—is key to remaining compliant while taking full advantage of what’s available.

Maximising Deductions and Tax Offsets

Claiming all eligible deductions is one of the most direct ways to reduce taxable income.

Work-related expenses can include anything from professional development courses to industry subscriptions, uniforms, or the cost of running a home office. A tech worker logging into systems from home after hours may be able to claim internet expenses and a portion of electricity costs.

Keeping thorough records, such as receipts and usage logs, makes all the difference when substantiating claims.

Another smart tactic involves bringing forward deductible expenses. Prepaying up to 12 months’ worth of investment loan interest or professional subscriptions can be particularly helpful in a year when income is unusually high. Similarly, if a large bonus or capital gain is expected, deferring other income or realising losses could help balance things out.

Maintaining private hospital cover is another method of reducing tax. This ensures you avoid the MLS, which could save you 1% to 1.5% of your income. In households where one partner earns significantly less, contributing to the lower-income spouse’s superannuation may provide a small offset and help balance long-term retirement savings.

Philanthropic individuals can claim tax deductions for donations over $2 to registered charities with Deductible Gift Recipient status. For example, donating $10,000 could reduce tax payable by around $4,500 for someone in the top bracket. Again, accurate receipts and record-keeping are crucial.

The less glamorous but highly effective method of solid record-keeping should not be underestimated. Tracking expenses in real-time, either through spreadsheets or financial software, can help identify all claimable amounts and avoid headaches during tax time or if the ATO asks questions.

Superannuation Contributions

Super continues to be one of the most tax-effective tools for high-income earners. Pre-tax (concessional) contributions are taxed at 15% inside your super fund, which is significantly lower than the highest marginal rate. The cap for these contributions in the 2024–25 financial year is $30,000, including any employer payments.

Salary sacrificing up to the cap can reduce your taxable income while building your retirement nest egg.

Where super balances are under $500,000, carry-forward rules allow unused portions of the cap from the previous five years to be used in the current year. This is especially useful for professionals who took time off or earned less in earlier years and are now earning more.

However, high-income earners exceeding $250,000 in total income may also be subject to an additional 15% tax on their concessional contributions under Division 293, meaning their contributions are taxed at 30%. Even then, this still beats the 45% marginal rate.

Beyond tax savings, superannuation provides a lower-tax investment environment.

Earnings in super are taxed at 15%, and long-term capital gains at 10%. Over time, this lower tax on investment returns can significantly improve retirement outcomes. Couples can consider contribution splitting or spouse contributions to even out retirement savings and reduce future tax liabilities.

It’s worth remaining alert to ongoing discussions about changes to super tax rules, particularly proposals targeting balances above $3 million. While not yet implemented, these conversations suggest possible future limitations, making it all the more important to review strategies regularly.

Smart Investment Strategies

Negative gearing remains popular among high-income earners investing in property. If expenses like interest, maintenance, and depreciation exceed rental income, the resulting loss can be deducted against other income, helping reduce tax. The long-term goal is typically capital growth, with tax losses serving as a short-term benefit.

Capital gains tax can also be managed strategically. Holding assets for over 12 months results in a 50% CGT discount, halving the tax payable on profits. Timing the sale of investments in years with lower income can also help. For example, spreading out the sale of share options or assets across multiple years may reduce the overall tax impact.

Franking credits on Australian share dividends can further improve tax outcomes. These credits reflect tax already paid at the company level, which offsets personal tax liabilities. High earners receiving fully franked dividends may find themselves only paying the difference between the company rate and their personal marginal rate.

Other investment tools, such as insurance or investment bonds, offer long-term tax deferral. While taxed internally at 30%, if held for 10 years or more, the proceeds can be withdrawn tax-free. Though not suited to all, they may be helpful for planning long-term goals such as children’s education funding.

Interest on loans for income-generating investments is generally tax-deductible, opening up options like debt recycling. This strategy aims to convert personal home loan debt into tax-deductible investment debt over time. However, the underlying investment must make sense independently of the tax benefit.

Income Splitting and Structuring

For those with family members in lower tax brackets, discretionary trusts can help distribute investment income in a way that reduces the household’s overall tax. A family trust might allocate income to a university-aged child or a non-working spouse, allowing that portion to be taxed at a lower rate.

Business owners or independent professionals may consider company structures, especially where income can be retained in the business for reinvestment.

Companies pay a flat tax rate, often lower than the top individual rate. However, income that falls under personal services income rules must still be attributed to the individual, limiting the usefulness of such structures for some.

Trusts can also be beneficial when managing capital gains. Unlike individual ownership, a trust can distribute a gain to a beneficiary in a lower bracket or one with capital losses to offset the gain. Care must be taken to comply with ATO guidance, particularly around the genuine benefit of trust distributions. Attempts to cycle funds back to the high-income earner without a legitimate basis can attract penalties.

These structures come with complexity and cost, so they’re best suited for individuals with substantial passive income or business revenue rather than simple salary earners. However, they can be very effective when used appropriately.

Additional Tips

Some employers offer salary packaging arrangements where certain expenses can be paid from pre-tax income. This could include laptops, phones, or novated car leases. Professionals in certain sectors, such as health or charity, may have access to broader packaging benefits, which can result in significant tax savings.

Income protection insurance is another tax-deductible expense when the policy is held outside of super. The deduction helps offset the cost of protecting your most valuable asset—your ability to earn.

Expenses tied to education and training, if connected to your current job, may also be deductible. Executive MBA programs or specialist certifications may improve your career prospects while reducing your taxable income. Similarly, many high-income professionals can claim home office expenses using a fixed hourly rate or actual cost method.

Reviewing tax strategies each financial year ensures they remain aligned with your circumstances. Tax law is dynamic, and what worked in the past may no longer apply. With appropriate planning and expert guidance, it’s possible to keep more of your income legally and use it to build lasting wealth.

Key takeaways

1. High-income earners in Australia face steep tax rates, but proactive legal planning can reduce the impact significantly.
2. Claiming all eligible deductions—including work-related expenses, charitable donations, and home office costs—can lower taxable income.
3. Prepaying expenses and deferring income or gains allows more control over when tax is paid, especially in high-income years.
4. Superannuation remains a powerful tax tool, with concessional contributions taxed at 15% and potential for long-term investment growth in a lower-tax environment.
5. Investment strategies such as negative gearing, timing of capital gains, and franked dividends can be used to optimise after-tax returns.
6. Trusts and company structures offer opportunities for income splitting and tax deferral, but must be used carefully and within ATO guidelines.
7. Additional strategies like salary packaging, income protection insurance, and continuing education provide extra ways to reduce taxable income.
8. Staying informed and reviewing your strategy each year is essential to keep pace with changing legislation and ensure ongoing tax efficiency.
9. Seeking professional advice tailored to your circumstances can help you make the most of available strategies and avoid costly mistakes.

Frequently Asked Questions

Do Tax Minimisation Strategies Raise Red Flags With the ATO?

The ATO draws a clear line between legitimate tax minimisation and illegal tax avoidance. Using normal, legal strategies – claiming the deductions you’re entitled to, contributing extra to superannuation, etc. – won’t raise eyebrows as long as your claims are honest and proportionate.

Red flags typically only pop up if something is unusual or “too good to be true.” For instance, if a high earner reports an implausibly low taxable income through a complex scheme, or claims excessively large deductions with no solid justification, that will draw scrutiny (the ATO’s systems are good at spotting outliers).

The bottom line: sensible tax planning won’t trigger trouble. Just steer clear of aggressive schemes that exist solely to dodge tax, because those are what put you on the ATO’s radar.

How Do ATO Audits Typically Work for High-Income Earners?

Being a high-income earner doesn’t automatically put a target on your back for an ATO audit. The Tax Office mainly relies on data matching to flag unusual claims or discrepancies in tax returns. If you are selected for an audit (or a preliminary review), it usually starts with a notice or call explaining what’s being examined.

You’ll need to provide documentation to support the items in question — say you claimed a large deduction, you might be asked for receipts or evidence. The process can take weeks or even months, with the ATO often asking follow-up questions. It might sound stressful, but remember it’s usually just a fact-check. If your claims are legitimate and your records are in order, an audit typically ends without drama.

And if an error is discovered, generally, you’ll just have to pay the extra tax (plus interest or a penalty for serious mistakes).

How Often Should I Review and Update My Tax Plan?

You should revisit your tax minimisation strategy regularly, not just set and forget. For most high earners, an annual review is a good rule of thumb – often done as June 30 approaches, so you can implement any last-minute moves before the financial year ends.

Tax laws and personal circumstances change, so a yearly check-in helps you stay up to date with new rules (and any new deductions or offsets you could use). Also, don’t wait for the calendar if something big changes in your life. If you get a new job with a higher salary, start a side business, get married, have a child, or experience any other major shift, it’s wise to update your tax plan as soon as possible.

Regular reviews mean you can adjust things proactively rather than discovering at tax time that you missed out on savings or, worse, owe more than expected.