You can legally reduce taxable income in Australia through superannuation contributions, work-related deductions, salary sacrifice, negative gearing, charitable donations, and strategic asset timing. High-income earners can save up to $30,000 per year in tax — or significantly more with the right structure — by using ATO-compliant strategies that most Australians either overlook or underuse.

This guide covers 12 proven tax reduction strategies for Australian individuals, with real dollar examples, current caps, and important caveats for the 2025–26 financial year.

What Counts as Taxable Income in Australia?

Taxable income is your total assessable income minus allowable deductions. It includes more than just your salary.

The ATO counts these as assessable income:

• Wages, salaries, bonuses, and commissions
• Investment income — interest, dividends, and capital gains
• Rental income from investment properties
• Business profits (sole trader, partnership)
• Foreign income earned as an Australian resident
• Freelance work, gig economy income, and contractor payments

Reducing your taxable income works by either increasing your deductions or redirecting income to tax-advantaged structures. You don’t need to earn less — you need to arrange your finances more strategically.

Current Tax Rates and Brackets (2025–26)

Australia uses a progressive tax system. The more you earn, the higher the marginal rate applied to each additional dollar.

Taxable Income	Tax Rate
$0 – $18,200	Nil
$18,201 – $45,000	16c for each $1 over $18,200
$45,001 – $135,000	$4,288 + 30c for each $1 over $45,000
$135,001 – $190,000	$31,288 + 37c for each $1 over $135,000
$190,001 and over	$51,638 + 45c for each $1 over $190,000

Source: Australian Taxation Office

Most Australians also pay the 2% Medicare levy. Singles earning over $97,000 without private hospital insurance pay an additional Medicare Levy Surcharge of up to 1.5%.

Important 2026 update: From 1 July 2026, the lowest income tax rate reduces from 16% to 15% on income between $18,201 and $45,000, saving eligible taxpayers up to $268 per year. A further reduction to 14% is planned from 1 July 2027. (Budget 2025–26)

12 Legal Strategies to Reduce Taxable Income in Australia

1. Maximise Superannuation Contributions

Superannuation is the single most effective tax reduction strategy for most Australians. Concessional (before-tax) contributions are taxed at just 15% inside the super fund — compared to marginal rates of up to 47%.

The concessional contributions cap for 2025–26 is $30,000 per year, which includes your employer’s Superannuation Guarantee (currently 11.5%, rising to 12% from 1 July 2025).

Two main ways to contribute concessionally:

Salary sacrifice: You arrange with your employer to redirect pre-tax salary directly into super. For example, someone earning $120,000 who salary sacrifices $15,000 to super saves approximately $5,550 in income tax (the difference between their 37% marginal rate and the 15% contributions tax).

Personal deductible contributions: You contribute after-tax money, then claim a tax deduction. You must lodge a Notice of Intent to Claim with your super fund before the deduction can be claimed — and receive acknowledgement before lodging your return.

Carry-forward unused caps: If your total super balance is below $500,000, you can carry forward unused concessional cap amounts for up to five years. For example, someone who made no super contributions in FY2021–FY2024 could potentially contribute up to $137,500 in FY2025 — saving significant tax in a high-income year.

For sole traders and contractors, see our guide on sole trader superannuation for how this works without employer contributions.

Division 293 tax: If your income plus concessional super contributions exceed $250,000, an additional 15% tax (total 30%) applies to super contributions. Even at 30%, this is well below the 47% marginal rate — so the strategy still works.

2. Claim All Eligible Work-Related Deductions

Work-related deductions reduce your assessable income before tax is calculated. The ATO allows claims for expenses directly incurred in earning your employment income — provided you have the records to support them.

Work-from-home expenses: Use the fixed rate method of $0.70 per hour for 2024–25. This covers electricity, phone, internet, and stationery costs. You must keep a record of hours worked from home (a diary or timesheet). The ATO now requires more detailed records than the COVID-era shortcut method allowed.

Vehicle and travel expenses: Claim 88 cents per kilometre for up to 5,000 work-related kilometres without a logbook. For higher claims, a 12-week logbook is required to establish the work-use percentage of your vehicle.

Self-education expenses: Courses, textbooks, and study materials are deductible if the education is directly connected to your current role. The old $250 threshold has been removed — all amounts are deductible from the first dollar.

Tools and equipment: Items under $300 can be claimed immediately. More expensive items are depreciated over their useful life.

Commonly missed deductions:

• Laundry for work uniforms (up to $150 per year without receipts)
• Work-related mobile phone use ($200–$400 per year for many employees)
• Income protection insurance premiums (not inside super)
• Union fees and professional memberships
• Tax agent fees from the prior year’s return

Keep records for at least five years from the date you lodge your return. The ATO uses data-matching from over 350 sources and compares claims against occupation benchmarks — substantiation matters.

3. Use Salary Packaging to Reduce Taxable Income

Salary packaging (also called salary sacrifice) goes beyond super contributions. You agree to receive less pre-tax income in exchange for your employer paying for certain benefits.

Common packaged benefits include:

• Novated car leases (covering purchase, registration, insurance, fuel, and servicing)
• Laptops, tablets, and portable electronic devices
• School fees and childcare (via some employers)
• Home loan repayments (primarily for charity and public hospital employees)

For example, an employee earning $100,000 who packages a $15,000 car lease and $1,000 in other expenses reduces their taxable income to $85,000 — saving approximately $5,550 in income tax.

Important: Not all employers offer salary packaging, and Fringe Benefits Tax (FBT) applies to many benefits. Some items — such as portable electronic devices used primarily for work — are FBT-exempt. The tax savings depend on your marginal rate and whether the benefit attracts FBT.

Charity and public hospital employees can access particularly generous salary packaging — up to $15,900 of living expenses paid tax-free, including rent or mortgage payments.

One thing to watch: salary packaging can reduce your assessable income for borrowing purposes. Some lenders assess packaged salary, not gross salary, which can affect your borrowing capacity. If you’re planning a mortgage application soon, factor this in.

4. Prepay Deductible Expenses Before 30 June

Prepaying tax-deductible expenses brings the deduction forward into the current financial year. The ATO allows prepayments of up to 12 months to be immediately deductible.

Prime candidates for prepayment include:

• Investment property loan interest — prepaying 12 months of interest before 30 June locks in the deduction for the current year
• Income protection insurance premiums (not inside super)
• Professional subscriptions and memberships renewing in July
• Property management fees and landlord insurance

For example, prepaying $10,000 of investment loan interest before 30 June 2026 saves approximately $3,700 immediately for a taxpayer in the 37% tax bracket — instead of waiting until the following year’s return.

This strategy works best when your current year income is higher than you expect next year — such as when you’re approaching parental leave, a sabbatical, or retirement. Prepaying in the high-income year maximises the deduction value.

One caution: only 12-month prepayments are immediately deductible. Prepaying more than 12 months means the excess carries forward to the next year.

5. Make Charitable Donations to DGRs

Donations to Deductible Gift Recipients (DGRs) — organisations registered with the ATO — are fully tax-deductible for amounts over $2. You must keep a receipt.

For a taxpayer in the top bracket (47%), a $1,000 donation to a DGR costs just $530 out of pocket — the government effectively subsidises the remaining $470.

Strategic bunching: If you regularly donate $5,000 per year, consider making two years’ worth of donations ($10,000) in a high-income year — such as a year when you receive a large bonus or sell an asset at a capital gain. This maximises the marginal rate benefit.

Always verify that an organisation is registered as a DGR on the ATO’s register before claiming. Political donations, GoFundMe campaigns, and most overseas charities are not deductible unless they hold DGR status.

High-income earners with significant philanthropic goals may benefit from establishing a Private Ancillary Fund (PAF) — a private charitable trust that allows an immediate large deduction in a high-income year, with distributions to approved charities made over time.

6. Obtain Private Health Insurance to Avoid the Medicare Levy Surcharge

Singles earning over $97,000 (families over $194,000) who don’t hold private hospital insurance pay the Medicare Levy Surcharge (MLS) — up to 1.5% of taxable income on top of the standard 2% Medicare levy.

Income Tier	Single Threshold	MLS Rate
Tier 1	$97,001 – $113,000	1.0%
Tier 2	$113,001 – $151,000	1.25%
Tier 3	$151,001+	1.5%

Source: ATO – Medicare levy surcharge

For a single person earning $140,000, the MLS would be $1,750. Basic hospital cover typically costs $1,200–$1,800 per year — making insurance cheaper than the surcharge while providing actual health benefits.

Getting cover in place by 30 June avoids the MLS for the full financial year. Note: income for MLS purposes includes total reportable fringe benefits — so salary packaging can affect your threshold calculation.

7. Use Negative Gearing on Investment Properties

Negative gearing occurs when your investment property expenses — loan interest, maintenance, rates, insurance, and depreciation — exceed the rental income earned. This loss is deductible against your other assessable income, such as salary.

For example, a property generating $35,000 in rent with $42,000 in expenses (including interest) creates an $7,000 loss. For a taxpayer in the 37% bracket, that loss saves $2,590 in tax.

Tax-deductible investment property expenses include:

• Loan interest on borrowings to acquire the property
• Property management fees and letting commissions
• Council rates, water rates, and land tax
• Building and landlord insurance
• Repairs and maintenance (not capital improvements)
• Depreciation on the building structure (2.5% per year under capital works)
• Depreciation on plant and equipment (carpets, appliances, blinds)

A depreciation schedule from a qualified quantity surveyor typically costs $500–$800 but can identify $5,000–$15,000 in annual deductions — making it cost-effective in the first year alone.

The strategy works best as part of a long-term capital growth plan. The 50% CGT discount (for assets held more than 12 months) compounds the tax efficiency when you eventually sell. For a detailed breakdown of how negative gearing calculations work, see our negative gearing guide.

8. Time Capital Gains Strategically

Capital gains from selling shares, property, or other assets are added to your taxable income in the year of sale. But timing can significantly change how much you pay.

The 50% CGT discount: Hold an asset for more than 12 months before selling, and only 50% of the gain is assessable. On a $200,000 gain, this means only $100,000 is added to your taxable income — saving up to $47,000 in tax at the top marginal rate.

Timing sales to lower-income years: If you expect a year with lower income — parental leave, a career break, retirement — selling an appreciated asset in that year reduces the marginal rate applied to the gain. For example, selling in a year where your income is $80,000 rather than $180,000 can save $15,000+ on a $100,000 capital gain.

Tax-loss harvesting: Realise capital losses by selling underperforming investments to offset gains from profitable assets. Losses can be carried forward indefinitely and applied against future gains.

Contract date matters: The ATO uses the contract date — not the settlement date — to determine when a CGT event occurs. Signing on 29 June versus 2 July can shift a significant tax liability between financial years.

9. Explore Debt Recycling

Debt recycling is a strategy that converts non-deductible home loan debt into tax-deductible investment debt over time. Interest on loans used to purchase investments is deductible; interest on your home loan is not.

How it works:

1. You make an extra repayment on your home loan, reducing the balance
2. You redraw the same amount and use it to purchase income-producing investments (shares, managed funds, or investment property)
3. The redrawn portion is now investment debt — and the interest on it is tax-deductible
4. Investment income (dividends, distributions) is used to accelerate home loan repayments, repeating the cycle

Over time, you progressively shift your debt from non-deductible to deductible, improving your tax position while building an investment portfolio.

Debt recycling works best when your home loan is structured with a redraw facility (not an offset account), and when investment returns exceed the interest rate. It requires careful structuring — the loan must clearly identify the investment-use portion. Get specialist advice before implementing.

---

10. Use a Discretionary Family Trust to Split Income

A discretionary (family) trust allows a trustee to distribute income among beneficiaries at their discretion each year — directing income to family members in lower tax brackets to reduce the household’s total tax bill.

For example, a trust holding an investment portfolio generates $60,000 in income annually. The trustee distributes $20,000 each to two adult children studying at university (who pay minimal tax given their low income), rather than the trust income flowing to a high-income parent at 47%.

Common applications include:

• Distributing rental income from investment properties
• Allocating capital gains to beneficiaries with capital losses or the 50% CGT discount
• Retaining profits in a corporate beneficiary taxed at 25–30% (a “bucket company”)

For a full explanation of how trusts work and whether one suits your situation, see our family trust guide. For business owners using a bucket company strategy, our bucket company tax guide covers how this can cap tax on profits at 30%.

Key considerations:

• Setup costs: $2,000–$5,000
• Annual accounting and administration: $1,500–$3,000
• Trusts must be established before purchasing assets — transferring existing assets triggers CGT and potentially stamp duty
• Some states (including NSW) remove the land tax-free threshold for properties held in trusts
• Income must be distributed by 30 June each year via trustee resolution

11. Prepay or Restructure with Investment Bonds

Investment bonds (sometimes called insurance bonds) are tax-effective investment structures for medium to long-term wealth building. Earnings inside the bond are taxed at a maximum of 30% within the fund — not at your marginal rate.

The significant benefit: if you hold the bond for at least 10 years and don’t exceed the 125% contribution rule (you can’t contribute more than 125% of the previous year’s contribution without resetting the 10-year clock), the proceeds are received tax-free on withdrawal.

Investment bonds work well for:

• Individuals in the top tax bracket who have maxed out super contributions
• Parents building education funds for children
• Medium-term savings goals (10+ year horizon)

They’re not as flexible as super and don’t offer an upfront tax deduction, but they provide a tax-effective alternative when the concessional super cap is already reached.

---

12. Claim the Cost of Managing Your Tax Affairs

This is one of the most consistently overlooked deductions in Australia. You can claim a tax deduction for the cost of managing your tax affairs, including:

• Accountant fees for tax return preparation
• Tax planning advice relating to earning assessable income
• Tax agent fees and software subscriptions
• Travel to visit your accountant
• ATO interest charges on tax debts

Since accountant fees are deductible, a good tax accountant regularly identifies opportunities worth five to ten times their fee — making professional advice largely self-funding for most taxpayers with moderately complex affairs.

Not all advice costs are deductible. Fees for setting up trusts, companies, or SMSFs, initial financial plans for new investments, estate planning, and will preparation are generally not deductible in the year paid.

Tax Offsets vs Tax Deductions: What’s the Difference?

Understanding the distinction matters for your planning.

Tax deductions reduce your taxable income. A $1,000 deduction saves $470 for a taxpayer in the 47% bracket — but only $300 for someone in the 30% bracket.

Tax offsets directly reduce the tax you owe, dollar for dollar, regardless of income. A $1,000 offset is worth $1,000 to everyone who qualifies.

Key offsets available to individuals include:

Offset	Eligibility
Low Income Tax Offset (LITO)	Up to $700 for earners under $66,667
Spouse super contribution offset	Up to $540 when contributing to spouse’s super (spouse earning under $37,000)
Private health insurance rebate	Income-tested; received as a premium discount or tax offset
Senior Australians and Pensioners Tax Offset (SAPTO)	For eligible seniors and pensioners
Zone tax offset	For residents of remote and isolated areas

Franking credits on Australian company dividends function similarly to offsets — they represent company tax already paid on distributed profits. If your personal tax rate is below 30%, you may receive a refund of excess franking credits.

Advanced Strategies for High-Income Earners

Timing Income Across Financial Years

Self-employed individuals and business owners can often influence when income is recognised. Delaying invoicing until after 30 June, deferring a bonus to July, or timing contract completion can shift income to the following year — particularly useful when you expect lower income next year.

Conversely, bringing forward deductible expenses to the current year maximises their value when your marginal rate is high.

Business Structure Optimisation

How your income flows through a structure determines the tax rate applied to it:

Structure	Tax Rate
Sole trader	Personal marginal rates (up to 47%)
Company (base rate entity)	25%
Company (other)	30%
Discretionary trust	Depends on beneficiary; potentially 0%
SMSF (accumulation phase)	15%
SMSF (pension phase)	0%

Business owners with substantial passive income often work best with a discretionary trust plus a corporate beneficiary — channelling profits to a bucket company at 25–30% rather than taking everything personally at 47%.

For our high-income clients, see the detailed breakdown in our high-income earner tax minimisation guide.

The June 30 Tax Planning Checklist

Don’t leave these to the last minute:

• Check if you’ve reached your $30,000 concessional super cap — and consider a top-up via personal deductible contribution
• Review carry-forward unused super caps (5-year lookback, balance under $500k)
• Submit Notice of Intent to Claim form to your super fund before lodging your return
• Prepay up to 12 months of investment loan interest
• Prepay income protection insurance premiums
• Confirm private hospital insurance is in place if earning over $97,000
• Lodge trustee resolutions for any family trust distributions
• Review any capital gains and losses — consider realising losses to offset gains
• Ensure super contributions are received by the fund by 30 June (BPAY takes 2–3 business days)
• Keep records of all deductions claimed

Common Tax Mistakes to Avoid

Overclaiming without records: The ATO data-matches from over 350 sources and benchmarks claims by occupation. Claims outside the normal range trigger reviews. Good records protect you.

Missing the super deadline: Super contributions must be received by your fund by 30 June — not just initiated. BPAY takes 2–3 business days. A contribution sent on 29 June may arrive in July, pushing it to the next financial year and potentially causing a cap breach.

Setting up structures retrospectively: You cannot transfer existing assets into a newly established trust without triggering a CGT event. Trusts must be set up before assets are acquired.

Overlooking Division 293: High earners who push combined income and super contributions over $250,000 receive an unexpected Division 293 assessment. Model the numbers before making large contributions.

Salary sacrifice and HECS: Salary sacrifice reduces taxable income but your HECS repayment income is still calculated on your pre-sacrifice income — so repayments don’t reduce proportionally. Factor this in if you have a HELP/HECS debt.

Prepaying more than 12 months: Only 12-month prepayments are immediately deductible. Prepaying 24 months means only half is claimed in the current year.

---

Frequently Asked Questions

Next Steps: Get a Tax Plan That Works for You

The strategies above are general in nature. What works best for you depends on your income source, family situation, super balance, existing assets, and long-term goals. A tax plan built on generic advice can miss the most valuable opportunities — or create compliance problems.

At Box Advisory Services, we work with employees, contractors, investors, and business owners to build year-round tax reduction strategies tailored to their circumstances. Our tax planning services cover everything from basic deduction optimisation to complex trust and company structuring.

If you’re not sure where to start, our team of Chartered Accountants can review your current position and identify the strategies with the highest impact for your situation.

---

This article provides general information only and does not constitute personal financial or tax advice. Tax laws change regularly — always consult a registered tax agent or accountant before implementing strategies. Information is current as at March 2026.