What Are The Best Ways to Reduce Your Taxes on Income?

What's the best way to reduce your taxable income?

Comments

  • +15 votes

    Become a registered religion.

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      *one that gets away with touching little boys and escaping persecution.

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        They franchise now?

        • -1 vote

          They've got to pay the legal fees somehow.

      • -1 vote

        What advantages does this offer over the other types?

        • -1 vote

          Only they could provide a "hands on approach"

          Sorry, this got a bit dark.

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            @Drakesy: It's "almost banned".

  • +2 votes

    Best Ways

    British Virgin Islands
    Cayman Islands.

    :D

    OR

    Put more into your superannuation.

  • +9 votes

    Work less.

  • +9 votes

    Well…you just…reduce your income. Duh

    • +1 vote

      Some might laugh this off but is the best response here. No/low income = low or no tax

  • +2 votes

    Become a nurse. They have a heap of tax reduction initiatives. So much so you can bank $200k per annum.

    • +1 vote

      Other jobs where such tax reduction initiatives exist? A few male friends of mine became nurses, but don't think it's something I can ever pull off.

      • +1 vote

        Charity CEO

      • +1 vote

        Plumber

        • +1 vote

          Or any other trade, that involves ca$h.

      •  

        Most PBIs have good salary packaging options.

    •  

      Hahahahaha!

      Apparently, you can ask to sit behind a keyboard performing data entry, clock up lots of over time, pretend to work crazy hours while browsing OzBargain asking for advice on how to invest your $200K p.a.

  • +6 votes

    Become a politician, buy a lot of investment properties and take advantage of negative gearing. To the mooooooooon!

  • -1 vote

    Set up a company in Hong Kong and live 183 days overseas.

    Derive income from a source that isn't subject to CGT or located overseas and pay zero tax.

    Business-friendly tax system: The corporate tax rates in Hong Kong are competitive as it follows a territorial principle system which exempts tax for all profit earned outside of Hong Kong, while the income derived from Hong Kong is charged marginally from 8.25% to 16.5% for the year of assessment of 2018/19 onwards. Furthermore, capital gain tax, dividend tax, HAT, VAT or sales tax and withholding tax are not applicable.
    https://bbcincorp.com/resources/how-to-set-up-a-company-in-h...

    The individual income tax rate is also great.
    https://www.icalculator.info/hong-kong/income-tax-rates/2020...

    •  

      Living 183 days overseas doesn't automatically make you a non-resident.

      Read the ATO factsheet, specifically "Emily - teaching in Japan", which confirms this.
      https://www.ato.gov.au/Individuals/coming-to-australia-or-go...

      • -1 vote

        There are plenty of ex-pats that enjoy living and working overseas. They pay zero tax to the Australian government while travelling with an Australian passport.

        The best thing that people are can do is to learn how the system works and take full advantage of it so they don't get ripped off.

        Pro-tip, don't keep assets in a country that can be subject to government seizure.

        •  

          Yes, those ex-pats would no longer be residents of Australia for tax purposes because they would have a domicile in HK or wherever (which has nothing to do with whether you own a passport).

          This isn't the beginning of a long discussion on residency, we're just nipping the idea in the bud "Oh, I wasn't in Australia for 183 days" is somehow a tax residency test or proof.

          "Pro-tip, don't keep assets in a country that can be subject to government seizure."

          ??? Can you name some examples of such countries? (Can't any government pass a law that says it can seize property?)

  • +3 votes

    Pay extra Pre-tax superannuation !

    • +1 vote

      or from post tax. Making use of carry forward unused contributions from prior years.

  • +2 votes

    Donate to charity

    •  

      As long as you keep receipts.

      • +1 vote

        When you own the charity, that shouldn't be too hard

  • +2 votes

    Buy an investment property. The expenses and interest will be deductible from your other taxable income.

    • +1 vote

      If you had a $1m loan at 2.5% that is $25k interest. Even at top bracket interest rate it is going to be less than $12k less tax. You're just paying a lot of principle.

      It is also bad on your cashflow because the rent you get say 3% is $30k. The 5k that is not interest you need to pay at marginal tax rate. As your interest bill goes down every year you have to increasingly pay more income tax.

      •  

        I think you've forgotten to include the other costs of property ownership and maintenance.

        Good luck finding a property as positively geared as your example indicated.

        Also, this is why interest only loans are popular. Not cause people can't afford to pay principle, but because investors don't want to.

        • +4 votes

          Investment property is the only asset where people prefer to be negative cash flow every month so that they can enjoy the pot of gold at the end of the rainbow in 30 years. It is almost a prison sentence.

          •  

            @netjock: In reality it’s not generally negative cash flow, since most of the time depreciation (non cash) tips investors over into the negative gearing territory. From a true cash flow perspective most would be positive or neutral.

            • +2 votes

              @El-Rhi: How is it not negative cash flow when you have to pay your regular income to support?

              $1m property $0.8m loan at 2% is $2957 per month repayments, $35,484 per year

              3% yield is $30k a year that is before council, water rates plus maintenance

              The whole point of negative gearing is to pay out of your regular employment income so you don't have to pay tax on it.

              You got sucked in like the rest of them. Negative gearing just sounds fancy but not much benefit when interest rates are 2%.

              •  

                @netjock: You forget that you can draw on equity

                • +2 votes

                  @arkie0: To do what exactly? To survive month to month?

                  If you went out a bought an investment property right now to reduce tax you'll borrow much as you can. So what equity are you drawing?

                  Say in 5 years it's gone up 20%. $1m is now $1.2m. You draw 80% of that increase in equity which is $160k. You better have something good to do with the $160k. Because when you sell it and pay back the bank $160k you have to pay tax on the 50% capital gain which is $100k. If you are on highest tax rate it is 45% tax so about $50k after you paid off the bank. So $160k taken out + $50k tax you don't even break even. Lucky you didn't spend the $160k on something useless.

                  If you go and use the equity to buy another investment property you've got the same problem. Over time you are paying more and more income tax but less deductions from interest. Before long you will need to find a whole lot of money paying income tax at end of Oct or Feb.

                  • -1 vote

                    @netjock: Look like your mind is made.

                    For anyone else who's interested - https://www.realestate.com.au/news/farm-labourer-who-dropped.... You do have to be good at picking the right properties else - pick a property that yields greater than 3%, pick a property which gains more than 20% in 5 years - the average is 30% over 5, get above average.

                    Don't worry too much about income tax, some of the richest people leverage to the hilt and pay 0 income tax.

                    • +5 votes

                      @arkie0: For every Jeff Bezos there is another 1000+ people who didn't make it rich selling books.

                      Don't believe in Real Estate's propaganda. It is for the benefit of the RE industry. I read that article before. You notice how it says approach second tier lenders who are more likely to lend. They also lend at higher interest rates. So the guy took a chance, so lucky it paid off.

                      If picking property is that easy why is people selling property investment seminars? If I was so good at day trading I'd trade myself to be a billionaire instead of selling day trading courses. Easier to sell courses, riskless profit.

                      Even if you change my numbers to 30% increase, if you take out your equity and unless you use it properly (not go and buy an expensive car and taking a holiday) good luck paying your capital gains tax bill.

                    •  

                      @arkie0:

                      pick a property that yields greater than 3%, pick a property which gains more than 20% in 5 years - the average is 30% over 5, get above average.

                      6% APY? That is bad returns for a million dollars investment. That and the chance that the place getting trashed by the tenants. No thanks.

                      •  

                        @rektrading: Yes - that is netjock's assumption, I didn't want to go into a debate after he picked the lowest possible returns.

                        Like really, who spends 1M on an investment and charges 30k a year rent and thinks that's a good investment.

            • +1 vote

              @El-Rhi: 60% of investment properites are negatively geared fyi
              https://www.afr.com/policy/tax-and-super/negatively-geared-l...

              The funny thing is negative gearing still means you're losing money no matter how much you think you're saving off your tax bill (and consequentially ruining Australia's economy).

              •  

                @Drakesy: Yes, but what proportion would be negatively geared if not for depreciation, which is a non cash expense. I would say not too many except for the apartments with massive strata rates.

                So in reality many of these negatively geared properties are still cash flow neutral or even positive, so the owners aren’t really losing money.

                • -3 votes

                  @El-Rhi: I am not sure how your math works.

                  but what proportion would be negatively geared if not for depreciation, which is a non cash expense. I would say not too many except for the apartments with massive strata rates.

                  So not many people would be using depreciation. So lets say 60% of Drakesy's is now 50%.

                  So in reality many of these negatively geared properties are still cash flow neutral or even positive, so the owners aren’t really losing money.

                  If you are negatively geared you are not cash flow neutral. If you buy on a 30 year mortgage it is a long time before you are cash flow neutral (it means rents have to go up provided interest rates don't go up).

                  Nobody is losing money if the housing market goes up. Problem is paper profits vs real negative cash (using your working or other income to pay the mortgage and out goings until you realise your paper profits by selling). Selling is okay long as you don't try to get back into the market.

                  •  

                    @netjock: You can be negatively geared while also being cashflow positive

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                      @El-Rhi: oooh
                      Now i'm intrigued how this works.

                      • -2 votes

                        @Drakesy: It is the depreciation trick which only applies to new build.

                        The problem with that is it isn't magic. It is because you paid for it up front therefore getting depreciation. Property investment seminars likes to sell stuff to people bad at math.

  • +1 vote

    I don't know ask Jeff Bezos

  •  

    What is your taxable income?

    • -2 votes

      I think it's a bit personal question.

      •  

        OP hasn't supplied much detail in their question. Would be helpful to know what tax bracket they are in to hopefully provide some sort of answer that would be relevant to the OP's personal situation. OP might be wanting to drop below tax free threshold or is a higher income earner that would benefit on dropping down a tax bracket.

        Otherwise there are many guides around this time of year that they could consult.

  •  

    Multiple avenues depending on your personal situation, e.g. a family trust could work

  •  

    Well I bought a new car and am using it partly for uber so am getting heaps of deductions for deprecation, maintenance, phone etc

  •  

    Depends on your circumstances:

    1. If you are on higher tax rates 37%+ fastest way before 30th June is using up your super contribution limits
    2. You could get a whooping big margin loan and prepay the interest for next year
    3. If you have investment property bring forward maintenance works
    4. Working from home, buy office equipment

    If you have shares you made a profit on you might sell some of your losers to offset the gains.

  • +1 vote

    Below are some ways to reduce your taxable income via deductions, this is without knowing what the OP's income is.

    • Contribute to own Super.
    • Contribute to partner's Super.
    • Buy health insurance.
    • Buy income protection.
    • Donate to charity.
    • Undertake professional training or purchase training materials pertinent to your work.
    • Renew any professional memberships.
    • if you have an investment property there are many costs associated that can be claimed as deductions.
    • if a small business, look to purchase things that you need and can be claimed wholly this year eg a monitor or PC.
    •  

      if a small business, look to purchase things that you need and can be claimed wholly this year eg a monitor or PC.

      Would an expensive office chair should fall into the same category?
      https://www.ozbargain.com.au/node/627572?page=3

    •  

      Buy health insurance.

      Huh? Private health insurance isn’t a tax deduction. And buying it this late if you’re over the MLS is going to make (profanity) all difference to your tax, you’ll actually be worse off with the monthly premium for PHC for this month.

      But in the course of a year if you’re over the MLS it may save you some tax at the end of the year, but will be a policy which is basically worthless most of the time. Anything you would remotely use will most likely be more that the MLS will be.

  •  

    Here is an article from news.com.au

  •  

    Work for a multilateral development institution like my father.

  • +3 votes

    Locksmith - $200 for about 18 seconds work to get me into my house. He then offered me a $50 discount if I paid in cash.

    I'm sure the income on his tax return looks average.

  • +1 vote

    It depends on your income.

    A good start is making a concessional contribution to superannuation.

    Or buy $20k of complying shares and take out a margin loan for $10k and purchase more shares with that and then pre-pay the interest which will be around $500. Keep adding each year as the portfolio grows. I have a mate that did this and his ML is currently $350k on a $1m portfolio. He claims $15k in interest off his tax this year. It's not much but helps.

    Or be like my youngest daughter and only earn $18k and pay no tax.

    your question is so open ended that the answers can only be the same.

  •  

    double post. don't know why…