Top Tax Bracket OzBargainers: What Do You Do to Legally Reduce Your Tax Bill?

freekay on 09/09/2024 - 13:35
Last edited 10/09/2024 - 11:00 by 1 other user

With 96% of all OzB’ers earning over 190k, I was wondering if any of our esteemed money-baggers actively worked to reduce their tax bill, and if so, what?

Novated leasing an EV seems like a pretty decent deal these days, but are there any other LEGAL avenues that you’re currently using?

I promise I’m not from the ATO.

Edit - some people have been doubting the veracity of my claims that 96% of OzBargainers earn over $190k. So, to prove me right I've added a poll for you to share how much you earn.

Poll Options

  • 31
    I am in the 0% tax bracket (up to $18,200)
  • 19
    I am in the 16% tax bracket ($18,201 to $45,000)
  • 241
    I am in the 30% tax bracket ($45,001 to $135,000)
  • 160
    I am in the 37% tax bracket ($135,001 to $190,000)
  • 168
    I am in the 45% tax bracket ($190,001+)
Financial Taxation

Comments

        • freefall101 on 09/09/2024 - 17:40
          +1

          Yeah, this is very true. I went through the headache when changing a job, took a couple of months to get it all sorted out because the NL company is awful to deal with. Paying the loan during that time wasn't nice. Fortunately there were no other costs though, so it could have been worse.

          And what the NL company gave me as a "savings" calculation was laughably bad (then the pressure to sign up to other costs, not use my own insurance, etc). Anyone thinking about it should definitely use your calculator. I wish I had that rather than doing my own.

          • changyang1230 on 09/09/2024 - 17:45
            +2

            @freefall101: The typical saving figure they give is generally on point of reference of “compared to taking up 12% car loan” lol (or whatever interest rate is underneath the hood of the lease)

          • matt-ozb on 09/09/2024 - 23:08
            +1

            @freefall101: which lease company? SGFleet?

            • freefall101 on 09/09/2024 - 23:22

              @matt-ozb: Yup!

            • jace88 on 10/09/2024 - 14:23

              @matt-ozb: I also went through so much pain renovating with them when I changed employers too! Took months to resolve.

        • CantonasKungFuKick on 09/09/2024 - 22:25

          If you start a lease and it's FBT free, does it stay that way for the lease period even if the government incentive ceases?

          • changyang1230 on 09/09/2024 - 22:55
            +1

            @CantonasKungFuKick: No guarantee; but they will grandfather FBT exemption for any existing FBT-exempt PHEV even when it ends next year, so hopefully the same applies if/when BEV’s FBT exemption ends.

        • com930 on 10/09/2024 - 14:24
          +2

          Your spreedsheet is great, thanks a lot for your work.

          The ballon cost was a deal-breaker to me. Given the trend of EV price is going down, it is unlikely we can sell the vehicle close to the ballon cost. Hope you could share your view on this.

          • changyang1230 on 10/09/2024 - 17:23

            @com930: You can always adjust the "value at 5 years" to evaluate what happens if the depreciation is bad. For me the saving is so big that even if the car value is only 30% in five years time it's still a very good deal.

            • CantonasKungFuKick on 10/09/2024 - 21:55

              @changyang1230: One thing I don't fully get is if you earn say $200k then the payments are taken pre tax, but what about if you get a bonus once a year? I presume the tax savings are only available on the base salary?

              • changyang1230 on 10/09/2024 - 22:04
                +1

                @CantonasKungFuKick: It’s always based on the full taxable income, which is all incomes minus all deductions.

                The discount effect is from tax saving, so say you make 100,000 from one job but 200,000 from a side business, even if you NL via that first job, the effect of spending one dollar pretax is to reduce the taxable income from 300,000 to 299,999 (hence 45+2% tax saving per pretax dollar spent), rather than 100,000 to 99,999.

                • CantonasKungFuKick on 10/09/2024 - 22:11

                  @changyang1230: But how does that work when job A is taking the lease payment from your salary?

                  • changyang1230 on 11/09/2024 - 00:27
                    +1

                    @CantonasKungFuKick: Job A does not know about your job B income so when they adjust your PAYG take home impact they would indeed assume that it’s based on taking 1 dollar off 100,000 pay and would actually be inaccurate.

                    However when you eventually do your tax return ATO does all its maths and finds out that it’s in fact 300,000 down to 299,999 rather than 100,000 down to 99,999, so at that point all your maths and tax calculations would just balance out and you would get your refunds that tally and the true tax saving would reflect the 45+2 bracket benefit instead of the 30+2 bracket.

                    All tax deduction stuff work this way; your benefit is derived from your marginal bracket.

  • kyle on 09/09/2024 - 14:36
    +3

    To reduce your tax bill means you have to be out of pocket.

    • Jake D on 09/09/2024 - 14:40
      +1

      Not necessarily.

    • Inertia-g on 10/09/2024 - 07:44
      +4

      Not always - for example depreciation on an investment property.

    • BigBirdy on 10/09/2024 - 09:17
      +3

      Superannuation … it’s still your money, it just has to stay in your pocket for a while

      • amsaini15 on 10/09/2024 - 19:20
        -4

        So many people here talking about extra super contribution. I cannot get to terms to pay lump sum amount and get it locked for 15 years. Money now is more worth than something you get later.

        • illusion99 on 10/09/2024 - 20:45
          +1

          It’s not just locked away. It’s invested and returns on long term average (15-30+ years) are around 8-10% a year

        • JohnSy on 11/09/2024 - 00:33

          Not after tax is ain't!…

      • R4 on 11/09/2024 - 10:01
        +1

        Exactly. Superannuation is, in effect, deferred earnings - it's pay that you don't get today but in the future.

    • freekay on 10/09/2024 - 11:17
      +1

      Splitting of income (via trusts and/or companies), where allowed, is another way to reduce tax bill without being out of pocket.

      • justworld on 10/09/2024 - 12:27
        +2

        Can also employ parents/adult family members in a nominal role and pay them market wages - another form of income splitting that requires no out-of-pocketing since the money is just being shuffled around the same pool.

  • mrdean on 09/09/2024 - 14:46
    +1

    Trusts, foundations, holding companies, routing business transactions through ireland, panama, caymans, resident for tax purposes in the principality of monaco, diplomatic immunity, sovereign.

    • frostman on 09/09/2024 - 21:14
      +2

      That's for people earning over a million a year with a potential tax element of $400,000+

  • cloudy on 09/09/2024 - 14:52
    +3

    Lots of investment properties….its the Aussie way

  • freekay on 09/09/2024 - 15:32
    +17

    Anyone here just straight-up raw dog it and claim nothing?

    • od810 on 09/09/2024 - 16:35
      +8

      The things i do:
      - Max out Super contribution
      - Spouse contribution (my wife works part time and on a low income)
      - WFH expenses
      - Negative Gearing on Property (but i hate this)
      - Some year negative gearing on Shares but shares return is pretty good.
      - Shift your assets to lower income partner i.e. your shares so your dividends or CGT won't be taxed that high…

      I think those are the only things worth doing. There are ways to do with trust and what not, but if you don't have the scale, the cost of maintaining it is quite high, maybe it will eat up all your saving.

      • Aerith-Waifu on 10/09/2024 - 04:34
        +1

        How do you legally shift the shares to your partner?

        • duchy on 10/09/2024 - 10:40
          +4

          You give them post tax money from your income and invest in their name.

          Disadvantage: In case of a relationship breakdown the shares are in their name only.

        • Koolness on 10/09/2024 - 10:55

          This got my curious because this would be super beneficial for my household… but I don't think you can get around the CGT aspect.
          See the example in the link
          https://www.ato.gov.au/individuals-and-families/investments-…

          Not sure of the wizardry @od810 did to get around this, would love to know.

          • gromit on 10/09/2024 - 11:50
            +1

            @Koolness: you get away with it by giving them the after tax money (perfectly legal), then they buy and sell the shares. hence the CGT events are only in the spouses name. We do this as well, but yes the risk is if there is ever a relationship breakdown the shares are all the spouses.

          • od810 on 10/09/2024 - 14:27
            +3

            @Koolness: You can't do it if it's already under your name. But for shares it's probably easier to manage. But instead of keep investing under your name, shift the cash to your partner.

            If you plan to own shares in long term, might as well pay the CGT now and rebuy the shares under your wife.

            If you worry about who owns what, don't worry when divorce happens everything gets split.

          • whyisave on 12/09/2024 - 10:39

            @Koolness: You can't avoid the CGT, but if the shares pay dividends, then the tax is "lower" for the lower income person.

        • TilacVIP on 13/09/2024 - 09:55

          Either by selling them on market & buying them in your partners name or an off-market transfer.

          However, be aware, doing either, may trigger a CGT.

          You just can't "shift" the shares over & continue if they were the original owners from the start.

      • amsaini15 on 10/09/2024 - 19:21

        If you don't mind, may I ask what age bracket you fall (don't have to give exact)? Are you fine with paying $30k now into super for benefit later (15-20 years) ?
        How does your math works for it?

        • freekay on 11/09/2024 - 07:48

          I was maxing contributions since I was in my 20s. For me, it was disposable income, that I didn't need i.e. wouldn't put me in jeopardy if I didn't have immediate access to it, and so I'd rather get a tax break and let it grow in a tax-effective environment.

        • od810 on 11/09/2024 - 09:56

          I'm in 35-45 bracket. Yes i'm fine with sacrifice $30k for the next few years. Some years i didn't but i did catch up later on. I'm on the top marginal tax bracket, so it's no brainer for me to save 30% (though with division 293 it's less).

          My super grow much faster than my investment portfolio due to my silliness with stock picking :). my super average 12-15% annually for the past few years (i consciously chose 100% on international shares), while my personal share portfolio only returns 6-8%. So it's a double win for me at least, reduce marginal tax bracket as well as better return (because i can't muck around much with it)

    • s1Lence on 09/09/2024 - 16:59

      I

    • supersabroso on 10/09/2024 - 11:28
      +1

      Yep, that was me until I got hit by div 293. Now I'm furious, I've gone on a spending spree and I'm claiming everything (legit stuff only of course). Why should I work so hard to get taxed at 62%? It's ridiculous, what a scam. They started this bracket in 2013 for people on a total remuneration package (including super) of $300k+ then decided to drop it to $250k+ in 2017 and they haven't done anything with it since. It's like a huge slap to your face, stay down poor person, don't ever think of leaving the middle class as it's reserved for rich land lords.

      My only issue is that I've run out of things to buy as property is just way too expensive.

      • fredblogs on 10/09/2024 - 20:27

        how do you calc 62%?

        • od810 on 11/09/2024 - 14:34

          Obviously he doesn't understand how tax works :D, it's rough to get hit with extra 15% on the super (on the amount exceed 250K) when taxable income + super contribution > 250K

        • ladybird1 on 11/09/2024 - 17:24
          +1

          47+15 = 62

          Imagine you are in the top tax bracket, and sitting right on the threshold where the div 293 tax would start.

          What happens if your income increases by $1? (e.g. suppose you earn one extra dollar of interest on a bank deposit).

          You would pay 47% income tax on that dollar (including the 2% medicare levy).
          AND, you would also be taxed an extra 15% on one dollar of your super (assuming you have a non zero super contribution that year, which would usually be the case).

          You effectively lose 62 cents of that dollar.

          An absurdly high effective marginal tax rate!

          • changyang1230 on 11/09/2024 - 19:30
            +2

            @ladybird1: Assuming that you get 11.5% super guarantee on your income, the pain starts from income of around 224,300 because your 11.5% super guarantee contribution of 25794.5 would push your "income and concessional super contributions" total to more than 250,000 dollars, which is when div293 begins to apply.

            And if you spreadsheet it out the "additional tax" is in fact 16.7% as the 15% is based on "15% of the excess over the threshold or the taxable super contributions". So for each additional 1 dollar earned, they are taxing 15% of 1.115 dollars which is 16.7%. (On top of the 45+2% that you normally get taxed)

            Continuing from there, where does the pain stop?

            From 250,000 dollars gross income onwards, this effect lessens. At 250,000 dollars, SG 11.5% is 28750, and the "excess over the threshold" is also 28750 (since 278,750 is 28,750 above threshold of 250,000). 15% of this is 4,312.50. When you earn one additional dollars, these figures become SG 11.5% of 28,750.12, "excess over the threshold" of 28,751.12 (250,001+28,750.12). Lower of the two figure is 28,750.12, so 15% tax is 4,312.52, which is just 0.02 off the additional 1 dollar you made. If you do more precise calculations it's actually 1.725% additional tax - which is still a far lower cry than the 16.7% additional tax for the case from around 224,300 to 249,999 dollars.

            This whole thing ends around 260,900 gross income, when your SG hits 30,000 dollars which is the concessional contribution cap.

            So 224k to 261k are the "unfair zone" when it comes to Div293.

            • ladybird1 on 11/09/2024 - 21:42

              @changyang1230: 15% on investment income - my example
              16.7% on employement income on which super guarantee contributions are paid - your example

              The rest of your calculation is correct, though unnecessarily complicated. It boils down to saying that once you have paid the extra tax on the maximum taxable super contribution of $30k, you are done.

              • changyang1230 on 11/09/2024 - 22:36

                @ladybird1: I guess my point is to highlight that there is an unfair zone which doesn’t extend forever, it does end when you are over 30,000 super.

    • Trance N Dance on 10/09/2024 - 16:54
      +1

      $10 bucket donation at the very least, cmon this is OZBargain after all.

  • freefall101 on 09/09/2024 - 16:02
    +6

    Depends on the source of your income, trust and family distributions are the best but are not possible to do on a PAYG salary (and just be careful with adult kids these days)

    I miss living in a country with income splitting, my tax refund was awesome. Excellent way of encouraging people to have more kids too, assuming we ever have the houses to put them in.

  • ECE on 09/09/2024 - 16:06
    +4

    Nice try 🤣

  • 852 Neon Nights on 09/09/2024 - 16:28
    +1

    Move yourself and your money offshore. That is the only way.

    • burningrage on 09/09/2024 - 17:22
      +1

      Yes. This. Just make sure you don't get taxed on worldwide income. There are ways to do it but best not disclosed in this forum.

  • Tiredman on 09/09/2024 - 16:59
    +1

    I have some family trusts so I can redistribute where and when is suitable.

  • cashless on 09/09/2024 - 17:10

    What about the 4% of us that earn nowhere near that amount?

    • SuperLate on 09/09/2024 - 18:42
      +9

      Username checksout.

      • whyisave on 12/09/2024 - 10:58

        Username checks out, for posting after 1h 31m

    • danyool on 10/09/2024 - 14:01

      We are the 99%

  • burningrage on 09/09/2024 - 17:24
    -1

    There are tips shown here but I can tell there are quite a few that aren't disclosed here as well. The wise ones throw a few bikkies and kept the cake to themselves.

    (ie: OP, look elsewhere other than this forum)

    • freekay on 09/09/2024 - 23:04

      Want to keep it legal :)

  • JIMB0 on 09/09/2024 - 17:30
    +10

    There's one trick that the tax office can't get you on and is my favourite. It simply involves doing whatever you possibly can to earn less money. I achieve this mostly by working less hours and sometimes by taking on lower paid jobs that are more enjoyable.

    • freekay on 09/09/2024 - 23:05

      I respect that

  • mshanann on 09/09/2024 - 17:30
    +1

    Primary producer - https://www.ato.gov.au/api/public/content/0-87b17d09-0938-47…

    https://www.hrblock.com.au/tax-academy/tax-advice-for-farmer…

    Spread your tax liability over multiple years
    Farm Management Deposits
    School pickup 4wd is now a work vehicle

  • dinglejerry on 09/09/2024 - 18:06
    +2

    96%?

  • simplystu on 09/09/2024 - 18:44
    -1

    Isn't this the very reason why ppl earning $250,000+/year (esp the ones above $500k+) … pay financial consultants for ???

    Financial consultants do all the heavy lifting (+ find loopholes/exploits/etc) … and you generally only meet with them every 6 months in person (but may have informal contact more often).

    I don't exactly know … As I'm only in the $100,000 - $120,000 area (depending on OT).

    Anyone on even $250,000+ "should" be consulting a professional financial consultant … They are worth their weight in gold.

    • changyang1230 on 09/09/2024 - 19:27
      +18

      To be honest financial advisors vary significantly in quality.

      I make comfortably above 250k per year as an anaesthetist. I had an initial meet up with an FA, and after a few sessions, all they did was to ask me to let them take over my super portfolio plus invest in non-super stuff too using their platform, and they gave me a mix of 15 index + retail funds to invest through. That's it - and they ask for some 0.6-0.8% of my portfolio per year for the honour of something I could easily DIY via ETF.

      There is definitely some value in some coaching and guidance if one is not au fait with financial principles; however in my personal scenario I found financial advisor (at least the one I saw) to be of tiny value (if not to my long term detriment based on the ongoing loss from fees).

      • freekay on 09/09/2024 - 23:07
        +2

        Most financial advisers only like to play with managed investments, insurance and super. Very few of them focus on tax minimisation

    • RTX9090Ti on 09/09/2024 - 20:24
      -3

      Anyone on $250k+ don't waste their time reading/posting on ozb.

      • YRT on 09/09/2024 - 21:08
        +11

        Not true ;)

      • gromit on 10/09/2024 - 19:16

        not remotely true.

    • Lit Homie on 10/09/2024 - 15:30
      +2

      I think you are mistaking a financial consultant for taxation specialist/accountants. Financial consultants just tell you how to preserve capital.

      Tax accountants especially the aggresive firms help you structure your assets to minimise your tax liability.

      • whyisave on 12/09/2024 - 11:00

        Any names for such firms?
        I need some advice.

  • justworld on 09/09/2024 - 19:23
    +4
    1. Negative gearing and depreciation
    2. Spread out property. Spouse and I own one PPOR each, and I own one investment property. Next IP will be bought in her name only. One after that will be bought interstate.
    3. Vehicle depreciation and deductions. I don't need to drive to my office (I walk), so during the logbook I just drive a few long client trips and regional conferences. This gets my business use % up and I don't have any private (commuter) use to dilute it.
    4. We buy a lot of things (computer, phone, tablet, furniture) for business purposes. We get the benefit of using those things but also get to part-apportion.
    5. Conferences. Can fit a lot of incidental sightseeing on work trips.

    Still doesn't do that much - all of the above combined might save me $15-$20k a year, max. I still pay well over $150k a year in income tax alone as does my spouse.

    • donga100 on 09/09/2024 - 19:32
      +3

      Conferences. Can fit a lot of incidental sightseeing on work trips.

      I do this every time I book a holiday. Search for any sort of conference or facility tour or anything else vaguely work/career related and create a documented itinerary. Don't even need to attend the conferences, just register for them and keep an itinerary in case of audit.

      • justworld on 09/09/2024 - 19:34
        +1

        Yep, I purposely blend work trips and holidays since the deduction rules are quite lax. And besides, no one checks. And there's no way to verify as long as you can produce the itinerary and everything else is consistent.

      • Koolness on 10/09/2024 - 10:58
        +3

        This is a great tip, thank you very much. Never thought of this.

    • mrvaluepack on 09/09/2024 - 19:34
      -4

      I still pay well over $150k a year in income tax alone as does my spouse.

      So you and your spouse have taxable incomes of ~$400k each? Nice humble brag…

      • justworld on 09/09/2024 - 19:37

        Was more to pre-empt those who say 'I guess you barely pay any tax at all - the tax system is so unfair'

      • RTX9090Ti on 09/09/2024 - 20:26
        +2

        not a brag, just bunch of words put together and no way you can verify it.

        same as I got $10m in my bank account now, believe it or not and I don't work.

        • mrvaluepack on 09/09/2024 - 21:00
          -1

          Well, I've got $11m instead lol

      • MrThing on 10/09/2024 - 00:12
        -1

        you mean OP is lying

    • Aerith-Waifu on 10/09/2024 - 04:37

      How do you explain to the taxman if both partners are travelling with a kid on conferences when the kid is obviously not there for the business part of things?

      • justworld on 10/09/2024 - 08:16
        -1

        Not sure. We don't have kids yet. It would be a red flag and would ruin any plausible deniability so I would avoid mixing kid travel and business travel.

      • dmcneice on 10/09/2024 - 08:45
        +2

        I believe its completely fine, but you can still only claim your portion of the trip.

        This is common in the medical field, where I am from. If you for example take a trip to a conference with your partner and kid, then only the conference, your airfare and your hotel cost would be covered, you cant deduct your partners or your kids costs.

        • Aerith-Waifu on 10/09/2024 - 18:31

          Really? If the partner also part of the business you can actually deduct both the airfare and the hotel costs minus the kids costs? Seriously?

          • dmcneice on 10/09/2024 - 19:12
            +1

            @Aerith-Waifu: yes if the partner is part of the business, and they are also attending said conference, then yes. If the partner is part of the business but only travelling with you to the conference (not attending) to look after the joint child, then no, that wouldnt fly.

          • gromit on 11/09/2024 - 09:25
            +3

            @Aerith-Waifu: yes, I have regularly taken my wife on business trips, I simply cover her costs out of pocket, it is no different. As long as you are not claiming their costs you are fine.

    • JownehFixIT on 10/09/2024 - 08:35
      +1

      Thank you for your service.

    • cosmogirlsz on 10/09/2024 - 14:30

      Really curious how this works! Do you own a PPOR each, but rent one out and get paid by cash?

      • justworld on 10/09/2024 - 14:56

        we own three properties between us, one PPOR each and the third being an IP in my name. The PPORs are both true PPORs - we like having the flexibility of having two houses.

  • Dack Smith on 09/09/2024 - 20:42

    Rich whoppers, but still having to pay tax lol

    The super rich actually don’t pay tax, like the multinational corporations.

    So…. sucks to be anybody but ones like Carlos Slim and Alphabet

    • Eeples on 10/09/2024 - 11:44

      Indeed. It is the very rich that don’t pay taxes… not paying taxes is socialism.

      Middle class welfare, concessional Super contributions, neg gearing, share imputation credits…..

      “We all too often have socialism for the rich and rugged free market capitalism for the poor.” - MLK jr.

  • Smol Cat on 09/09/2024 - 20:54

    So I’m a povo pleb with a mortgage still owing half a mil. I’m assuming all this advice is useless to me and the best bet is just to throw all my money at paying down the mortgage right? I am somewhat financially illiterate.

    • freekay on 09/09/2024 - 23:09
      +2

      No. Tax minimisation is something everyone who pays tax should be looking into. Why pay more than you have to?

  • DontNeedThis on 09/09/2024 - 21:10
    +2

    96%? Is that real? Was there a poll? Getting depressed af!

    • dinglejerry on 09/09/2024 - 21:47
      +2

      It's ozbraggin, the veracity of any statistics is questionable. I personally earn over 300k but never disclose on polls as anything over 200k.

    • freekay on 09/09/2024 - 23:19

      It was in the last census. Question 568: “Which is your preferred bargain site, and how much do you earn?”

  • Eeples on 10/09/2024 - 00:04
    +3

    I saved heaps of tax by working 3 days a week instead of full time. Did that for 2 years.

    Another year I saved heaps by taking 1 year LSL at half pay.

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