What general methods are there for people to reduce the amount of income tax they pay?
I'm aware that there are things that can be done, however, I don't know a great deal about things related to finance and economics.
I work 2 jobs:
Job 1: $80k per annum
Job 2: $30k per annum
Cheers
It doesn't matter if you get paid in cash or via bank account deposit. We are required to declare that as income.
Do you live in some kind of imaginary utopia? Do you really think all businesses are declaring their cash incomes? :P
I don't think you read my comment correctly.
We are required to declare all income.
Up to the individual if they want to comply with the law or not.
I was suggesting that to save on tax, you don't declare it.
I was suggesting that to
save onevade tax, you don't declare it.
Fixed that for you.
@brendanm: You can begrudge it all you like, but my statement remains factual:
It doesn't matter if you get paid in cash or via bank account deposit. We are required to declare that as income.
@GG57: Yes I fully understand that. People don't declare it, however illegal this may be, as lots of it is wasted on absolute rubbish.
@brendanm: Perhaps people evade tax because they are greedy and don't want to contribute equally to society.
If you don't agree with how government funding is distributed, elect a different government. Evading tax won't change anything.
@GG57: They all waste it.
Evading tax won't change anything
Of course it does, it means that it isn't your money they are wasting.
@brendanm: Thanks for that. Your tax evasion means that the rest of us taxpayers are contributing more than we should be, or some things will go unfunded by the government.
In OP's example, they earn $30k in their second job, and some people suggest they could pay less tax if they took that as cash (and didn't declare it, to evade tax).
What if the ~14million individual taxpayers in Australia all did that with some proportion of their income?
And again, if you don't like political parties, politicians or governments, do something about it. You raised a forum post on here previously asking what can be done about government waste: https://www.ozbargain.com.au/node/584090
Did you just give up after that?
@GG57: I don't really evade too much tax these days, only if I flip a car.
If enough people do it, and show that people are sick of government waste, perhaps things will change.
Did you just give up after that?
What would I do exactly? Even if I were to get into politics, I'd be one person trying to fight against a bunch of scumbags.
@brendanm: You are not evading tax if you flip a car and don't report it. No CGT on personal vehicles.
@GG57: "Equally?"
Pretty sure the <$23,226 income earners (LMITO/LITO/TaxFreeThreshold) don't pay and contribute tax and Medicare.
@burningrage: Equally as in at the rates of taxation in place at any one time, based on the ability to pay.
Even those people earning bucketloads of $ still enjoy a tax free threshold.
So many people appear to want to earn lots of money but also retain it for their own purposes rather than contributing to the society that they live in; they probably then complain about the state of our health system, roads, and other societal infrastructure.
they probably then complain about the state of our health system, roads, and other societal infrastructure
If the money was actually spent on health and education I'd be happy to pay it.
@GG57: "So many people appear to want to earn lots of money but also retain it for their own purposes rather than contributing to the society that they live in"
I am curious about this statement. Isn't this a definition of communism?
It is almost like saying let the Govt takes ALL of your money and then distribute them according to their "needs". Effort is not rewarded. Lack of it is instead treated as "needy" and thus rewarded (and getting votes in return)
It almost sounds like Dante's law. By this definition, you are happy to tax people 99% of their income if 1% is enough as "necessary" for living and breathing.
I am glad we as a nation are not there…. yet.
LOL 😂
Tax minimisation only really worth the effort if you're in the top tier tax bracket
Otherwise, it is mostly just expenses deduction
I am on similar income at the moment, $80k first job, $20k for the second job.
So far I have not found any good ways to minimise my tax bill without dropping some hours along the line.
When you are a PAYG employee you are very much limited to how much you can claim on tax.
However if you do have a rich parents who is going to give you millions in company shares, then this is worth a watch. https://www.youtube.com/watch?v=Pk_iEdHieSc
I know this isn’t the answer you want, but talk to an accountant. They’ll be able to give you some ideas based on your personal circumstances.
There’s a wide variety of things which impact the tax you pay (Eg health insurance) that may not be so obvious as well as deductions which are profession specific.
Won't don't people negotiate a work car in your package if possible ..
No one gets work cars as part of a package anymore
Charities still do.
People that need them for work do
No, now they're given permission to drive a company fleet car for work purposes, often with an incredibly strict policy on what kinds of personal use is allowed as to not be considered a car-fringe-benefit
Nobody gets a car as part of a package, because FBT makes it less effort to just give the employee the benefit in cash
No, now they're given permission to drive a company fleet car for work purposes
No, is included in your package.
Every employment contract I have seen for jobs that include a car detail the car in the employment contract.
You don't just get a job offer, turn up on day one and have someone say "here's your work car"
If you are moved to a different role that doesn't see you have a work car you might be allowed to keep it, or your employer may pay you more and take the car away.
because fringe benefits tax costs more than the tax on wages that's why
Could one drive for uber 10 to 20 hours a week, and then claim, expenses like fuel, cleaning and rego. For the percentage they use the car for uber?
Using a logbook for a few months to determine percange use and costs?
This might not work for op as they probably work 60 hours a week already with 2 jobs.
'Could one drive for uber 10 to 20 hours a week'
totally ! I think you need a newish car - I saw folks spending $37K on new cars seeking to impress prospective customers
and then one could sit in the car for 20 hours a week earning like $10 per hour
fabulous - at that rate you could almost pay off the new car after 30 years ?
oh wait - you'll need a newer car in 3 years or so - some kinda Uber rule I think …
Negative gearing.
Unfortunately that is very specifically called loosing money 🤷♀️
Negative gearing occurs when the cost of owning a rental property outweighs the income it generates each year. This creates a taxable loss, which can normally be offset against other income including your wage or salary, to provide tax savings.
Yes: You made a loss. Negative gearing is still loosing money.
If you could choose, no-one would choose to negatively gear.
If you have two options, one - negatively gear something, two - positively gear something, and you intentionally choose one, you are a sh it investor
@Scantu: People who choose to negatively gear for the main purpose to dodge tax should have their rights to public education, public roads etc. revoked by the same amount.
You pay 0 tax? Well you don’t get to drive on public roads, have access to Medicare and send your kids to public school.
Pay 50% of the tax you’re supposed to have paid? Only drive on 50% of public roads, have 50% access to Medicare, and kids can only go to 50% of the schools in your city.
Sadly we don’t live in a utopia.
@Ghost47: You don't understand what negative gearing is or why it is a thing in the first place. You have an inadequate understanding of how our economy works. Tax is one way for citizens to contribute to society, but it is not the only one.
It worries me that people like you are able to vote for reactionary policies without demonstrating a good understanding of our systems.
Furthermore people complaining about negative gearing clearly did not receive the memo about the 2017 changes. The way the system currently is is not only fair but it is actually wound against landholders. Land and real property is the most expensive asset class in Australia.
@tbelwl3: You’ve made a lot of assumptions about me without actually refuting what I’ve said.
Two whole paragraphs on how I’m supposedly wrong without saying why I’m wrong.
You’ve basically said a whole lot of nothing, just like this reply to you. What a waste of time and effort, on both of our parts. Next time you’re going to make comment like that, stop before you waste your own time and anyone else’s time.
Tax is a subscription fee to live in this country. If you don’t want to pay tax and avoid it on purpose — which IS what some people do when they aim to negatively gear an IP — you do not deserve the same rights to public services paid for by actual tax payers.
@Ghost47: You believe it is nothing because you don't understand it.
Tax is one way the government has deemed you can contribute to society, but it is not the only one. The other options require more education on the matter and an understanding of tax law - it is open to everyone. Those who are intelligent enough reap the benefit.
Don't be upset because other people have spent time learning the system and you haven't out of your own lazyness.
@Scantu: 'You made a loss. Negative gearing is still loosing money.
If you could choose, no-one would choose to negatively gear.
If you have two options, one - negatively gear something, two - positively gear something, and you intentionally choose one, you are a sh it investor'
your logic seems to be loose -
"If you could choose, no-one would choose"
"If you have two options … and you intentionally choose one, you are a sh it investor"
I hope you are better than that with your investment decisions …
astute investors use gearing to balance or create negative cash flows deliberately to reduce income tax while holding the investment towards capital growth which is not taxable until the property is sold.
astute investors use gearing to balance or create negative cash flows deliberately to reduce income tax while holding the investment towards capital growth which is not taxable until the property is sold.
Actually, astute investors are still better off creating positive cash flows. Tablewhale is 100% correct. You are never better off losing money than making money. Ever
The reason NG is valuable to 'astute investors' isnt because it lets them lose money or convert income into capital (you are still better off making income and also creating capital gains). Its valuable because it allows you to reduce the costs of purchasing an asset which you believe will make capital gains. So it allows you to buy more assets and then get more capital gains. But - and here is the point - if you can buy an asset and make an income profit and also capital gains, you are better off than buying an asset where you make income losses and also capital gains.
$10 + ($3 less tax) > $10 + (-$3 that is deductible)
I hope you are better than that when you add
@dtc: While on the surface it looks like positive gearing is always better than negative gearing, it doesn't take into account leverage.
negative gearing allows you to leverage higher than an equivalent positively geared property. So if an investor ever finds themself in a positively geared situation, they can use this positive cashflow to get more loans, whose interest will negate the positive cashflow, and in return get more capital gains (in the future) for the new assets from those loans.
Its actually called losing and not loosing
and here i am earning not even half of your salary, LOL.
You're saving on paying more tax then.
Invest, run through a trust. This is the only genuine answer, there are no other blanket tax advantages for normal people
please elaborate
You have to have decent assets or the intent to very heavily invest in the near future, I'd say 100k with the intent to aggressively invest more is enough. That enables you to run the dividends/rental income to someone you trust at a lower marginal tax rate, or if you have a bit more of a build up of assets, a bucket company to cap the tax rate at 25% rather than 47%
That's not really answering OP's question on how to pay less income tax on their employment income
Yes I'm familiar with what a discretionary trust is
"a bucket company to cap the tax rate at 25% rather than 47%"
And this should be scrapped, or the highest marginal rate lowered significantly. This along with shammish sole traders /companies paying company tax rates while the rest of the plebs pay a marginal rate close to 50% is a joke.
@rektrading: Working class has access to all of the same systems. If you don't choose to use it that's on you.
@mdavant: Just because something is complicated to understand does not mean that it should be scrapped. Everyone has access to these opportunities - it is up to you to use them or not.
"Shammish sole traders/companies" You clearly do not understand what PSI is and you have most likely been fed a lie about how this (doesn't) work.
Tax and economics is complicated but stamping your feet because you feel like something is unfair isn't the way to go. Other people's success isn't at your detriment.
@tbelwl3: As a psi earner I would hope I understand it.
It is a shame my "company" doesnt get the benefits of a "company" that is primarily a service selling company tacking on some supplies.
Come join the psi club if you like a rogering too
@mdavant: Whatever you pay to yourself as income to spend as you wish will be taxed properly. You can't operate your whole life out of a company, the auditors will enjoy that
@mdavant: True but that will end up worse unless the spouse doesn't work. And there would also be an upper limit on what income you could get between the two of you that would end up with less tax
accountants expecting to earn $1000pa for preparing your trust income tax return while helping you avoid huge penalties for non-compliance would be happy for you to recommend trusts
Wait until you turn 60 and retire. Income streams from super pensions are tax free.
You are doing it all wrong.
You should be investing more time into trying to figure out how to earn more to pay more tax!
Or
The Australian way is to figure out how to get more handouts so that I have to pay more tax for you
Sort of sums up why straya is screwed
( Not having a go at you. Just the average strayan. You can never criticise someone working 2 jobs, we need more people prepared to do that as a lot wouldn't and would claim the extra handouts)
^ (Unfortunately) this.
In this country, you either go all out… earn, save, invest smartly, and re-invest smartly. My wife and I had 3 properties between the two of us when the market started increasing. The capital gains on 3 properties has made it possible to buy a house where we need to. Now to not make any stupid investment decisions after we get our house.
Or you go for the handouts and spend your days wisely looking after your health as you can't afford private health insurance/private hospital bills. My folks struggled in the middle income bracket for most of their lives… didn't get ahead due to limited education, didn't invest smartly, they worked hard during their 30s to 50s for very little results. They own their unit outright at least but did not have anything else left at retirement so now live off pensions. They make it work but I fear that when some developer buys their unit complex, they won't be able to afford a new unit elsewhere.
In summary … your parents, using their labour rather than your wisdom, laboured hard building Australia earning little reward, while smarty you gambled your little bit investing in assets rather than building anything and it paid off well. This really is the story of what is wrong with Australia, where lazy gambling on assets wins over actual labour, driving living standards down (shifting money around doesn’t grow the real economy).
Working hard will get someone a flat while working smart will get someone 3 houses.
The latter is better.
'You should be investing more time into trying to figure out how to earn more to pay more tax!'
ah - don't let the tax tail wag the dog ?
yes - 'you should be happy to pay tax' - it means you are earning an income - better than no-tax third world countries sending their kids to pick over rotting piles of stinking garbage in the heat while breathing in toxic fumes from the smouldering rubbish
in other news, one or two folks in Europe were fined something like a million dollars for speeding in their car - and could almost see that as a point of pride - fines being proportional to income
so yeah - happiness comes from helping others - pay tax, feel happy you're helping others - unless of course you're just a selfish a$$hole who only cares about themselves - or justifies their selfish or criminal behaviour as 'putting food on the table for my family'
"so yeah - happiness comes from helping others - pay tax, feel happy you're helping others - unless of course you're just a selfish a$$hole who only cares about themselves"
Agree. It does feel good helping people who need help.
The problem is the millions who receive help who definitely don't need it.
Like the people who own multiple investment properties using negative gearing to reduce their taxable income so they pay less than their fair share of tax? Or people who have massive share portfolios worth hundreds of thousands of dollars living off imputation credits which are an expense footed by taxpayers? You need to be more specific.
@sir-screwball: Nah. Talking about the people who never earn enough to get there. The ones who buy iPhones and holiday regularly whilst claiming middle class welfare.
Fwiw. I am against negative gearing and simplified capital gains discounts for property.
As for imputation credits, how many times should tax be applied to an investment?
@mdavant: Just the once. But the mechanic allowing it to be refundable once the rest of the entire tax bill is gone should be reverted back to what it was when Labor implemented it. Labor stopped the double taxation and then the LNP saw a chance to give rich people welfare without calling it that and made the credits refundable. That needs to stop.
@sir-screwball: But it is ok for the same person to own a lolly store and pay no tax if their income is low?
The problem isn't imputation, the problem is the availability of structures that avoid tax such as trusts and superannuation. There are so many vehicles people use to exploit taxation loopholes and the problem is people who canuse trusts /businesses and the super rich can exploit these more.
The problem isnt with the plebs
@mdavant: The problem is far and wide, I don't see why one is better or worse than the other. A retiree living off franking credits to fund their retirement is nothing more than welfare by another name.
@sir-screwball: Or they could own a share in a private company and pay zero tax as well. (And receive greater returns due to the lower tax burden)
Either way you seem to be advocating double taxation
@mdavant: Seems to me that you're purposefully misconstruing my words. Could it be that you have interests in franked dividends and are trying to suggest that somehow the taxpayers footing the bill for the refundable portion of those imputation credits is somehow NOT just regular old welfare for rich people?
When the imputation results in a refundable balance, that is no longer avoiding double taxation. That's a vehicle for pocketing some taxpayer money. Straight out of the LNP playbook.
So just to be clear: I support franking credits per the original vehicle introduced via the ALP. The one that avoids double taxation. I do not support the changes made to that measure to bastardise the intent of the measure, by the LNP, to change it into a vehicle for the well off to become more well off at the expense of the taxpayer. I don't like my tax dollars going to some retired rich greedy turd who's share portfolio is growing in size WHILST they're collecting welfare off it, then they have the gall to call centrelink recipients "dole bludgers".
@sir-screwball: No. I am just pointing out that alternative investment options include owning companies.
You have some negative stereotype against wealthy retirees. You have the gall to stereotype that they call centrelink recipients dole bludgers.
@mdavant: I don't have a negative stereotype against wealthy retirees. I can't have a stereotype. A stereotype is a commonly held connotation amongst the general populace, so a single person can't have a stereotype. You're confusing stereotype with opinion. I have a negative opinion of wealthy retirees.
The reason I have a negative opinion of wealthy retirees is because I know quite a few of them and they are all, in my experience, exactly the same. They have their dinner parties and christmas get togethers and they show off their 230k Dodge Rams and their 175k caravans and their new kitchens and classic Lamborghinis and then when it comes time to eat they sit at the table and collectively wax intellectual about how the ALP are trying to take away their livelihood by giving all their hard earned money to dole bludgers.
I can sit here and paste links all day showing the absolutely gargantuan differences in the economies of the 80's and 90's and 00's to now, and how things have slowly become so unaffordable for younger people that it's going to leave a lot of people behind, and I can demonstrate to you in so many words how the LNP and wealthy retirees have played a huge part, but you don't care and aren't going to listen.
And no, you're not "just" pointing out that alternative investment options include owning companies. You've asserted that a few times, I've acknowledged it already, and you are coming back to attack my views on imputation credits as 'supporting double taxation'.
You're ignoring the point and straw manning the situation because you've got nothing. You're just hiding (badly, I might add) that you have a bias in this discussion that conveniently allows you to flat out ignore the truth. I'd be very interested to know what your investment positions are and how you got to be such a staunch defender of these mechanisms that were originally used for good and have been retooled for exploitation.
@sir-screwball: Lol.
Read your post before your last self satisfying one and you will see that you again trotted out the double tax / pocketing taxpayer money diatribe.
If you acknowledge that there is nothing wrong with a high net worth person owning a company and not being taxed twice, then I guess you acknowledge that you are just arguing from a point of jealousy rather than fairness?
It is unfair to tax something multiple times. A business owner / shareholder can do what they like as it is legal, and fair.
I do hope that these so called friends keep their assets they have obviously worked hard for that you covet so much. Thanks for your post, your lazy socialist insulting view of the world clearly shines through. I bet you are a greens member
And as for my financial position, it is irrelevant, though I would guess I pay a lot more tax than you earn, so I must be a greedy lazy exploitative lucky right winged homophobic racist bigot..
Paying more taxes makes nobody happier. Don't be ridiculous.
'Paying more taxes makes nobody happier. Don't be ridiculous.'
if your taxes go to improve roads, schools, hospitals, and welfare for the sick and those who need it - then chances are they make those happy who benefit from those public services
in third-world countries where most folks don't pay taxes, there are often basically corrupt politicians and criminal gangs extorting bribes to allow daily standard transactions to go ahead without someone being threatened.
there is a zen saying 'the giver should be grateful' - giving to others tends to make you happy
money is like manure - in a big pile it stinks - spread around it encourages healthy new growth
Is your problem paying the extra tax on the second job? You should get a hefty tax return each year
Is your problem actually paying too much tax on the second job due to no tax free threshold able to be claimed (as you already have job number 1?)
If so, one way to even out (not reduce) the tax taken from your 2nd job would be to ask for PAYG Variation.
If your problem is high taxation in Australia, well, as @MDAVANT said, this is a country that penalizes people the more they work.
If you travel beween one job and the other job you might be able to claim the travel costs.
Donate to charity.
Doesn't save you any tax, just means you've spent more money
1a. Associate lease
Finding someone willing to handle the administration of this one will be very difficult.
Edit: Holy s&*^. One of the mainstream leasing companies actually does it!
I'm with smart salary if that is a different one.
if you have 2 jobs, you can claim travel between first and second I believe. this could be a nice deduction if it lines up
Same as you, I have 2 jobs earning around the same income. I voluntary contributed to hit max concessional contribution (27500) to super and participate in any Salary Sacrifice the company offer such as SPP.
the ATO literally has a website listing everything you are allowed ( and not allowed ) to claim against your employment income.
Have you tried going through it all and writing down all the ones you know you could do?
To clarify, what do you mean by reduce taxable income?
Are you concerned about paying a much higher rate of tax on your 2nd job due to the tax free threshold? Or you're more concerned about how much tax is calculated on your overall income at tax time?
Some people have this idea in their head that because a 2nd job has so much extra taken out of their pay as a percentage of their overall earnings for the period, that somehow they're "paying extra tax" on that money. That is not true, per se. When you take up a job you typically claim the tax free threshold on that income so that the effective tax rate your withholding is calculated on (by your employer when you're paid each period) is adjusted for the fact that the first ~20k you earn isn't taxed.
All that means is that if you earn 80k and claim the tax free threshold, the tax rate is adjusted so that you're only having the tax for 60k withheld instead of the full 80k.
When you take up a 2nd job, you can't claim the tax free threshold on that job without first removing it from your other job (well, you can but it's against the rules and you'll get smashed for it). So, the 2nd job is almost always has tax withheld at the full marginal rate from the first dollar. This gives the illusion that you're 'paying tax' at a higher rate. It's not that you're paying tax, it's that you're having more withheld by your employer.
Pertaining to this, it all balances out when your tax return is lodged. All your earnings are put into a big pile, all your deductions are taken from that pile, then your tax on taxable income is calculated in a single calculation. The fact that you had two or more income streams is irrelevant.
So, if your question is "how do I have less tax withheld from my 2nd job" the answer is "you can't". You technically can but you're rolling the dice in a pretty dangerous game. You can make a declaration that your tax bill is going to be much lower than the tax you're paying, which results in your 2nd employer being given a withholding authority that allows them to withhold less tax, but if you get it wrong you get absolutely rekt over it. This vehicle (income tax withholding variation) is typically for rich people with a lot of investments who gear their financial situation such that they're going to pay far less tax than they otherwise would, so rather than paying a lot, then getting a lot back in their tax return, they ask the ATO to authorise them paying closer to what they will after their deductions. An example of this was a cardiologist who earned 400k but who's taxable income was ~70k so he had his withholding adjusted down to 70k. He did this via a lot of rental properties.
If you are looking for ways to maximise your deductions and offsets to reduce your tax bill.. Go figure it out yourself, I'm not going to help anyone rip off their fellow man so they can get theirs at the expense of everyone else.
Everything you wrote was so beautiful and smart until the last paragraph when you activated the "envy" alarm.
Donate to your local corrupt friendly LNP candidate
Get chummy with them and you'll get access to some good bargains
Make sure you share the bargains here on OzB :)
How about paying no tax and don't do any work pass the tax free threshold .
Most will hit it in less than a couple months :)
This is what I know, looking at it from "first principles". I'd be keen to know if there is anything else.
Other Ideas
Get paid in cash.