If you do not assess your current financial situation, you are more likely to pay unnecessary taxes. Regardless of your income bracket, you can make some adjustments to protect your income from taxes. Employing a tax accountant to help you make the adjustments can save you money. If you want to minimise your tax, here are some comprehensive tax tips for different income brackets.
Understanding Income Tax Rates and Thresholds
In Australia, income is taxed on a sliding scale. The amount you pay depends on how much you earn and any deductions or offsets you are entitled to. Current income tax rates for Australian residents aged 18 and over are as follows.
For 2023-24
0–$18,200: Nil
$18,201–$45,000: 19c for each $1 over $18,200
$45,001–$120,000: $5,092 plus 32.5c for each $1 over $45,000
$120,001–$180,000: $29,467 plus 37c for each $1 over $120,000
$180,001 and over: $51,667 plus 45c for each $1 over $180,000
For 2024-25
0–$18,200: Nil
$18,201–$45,000: 16c for each $1 over $18,200
$45,001–$135,000: $4,288 plus 30c for each $1 over $45,000
$135,001–$190,000: $31,288 plus 37c for each $1 over $135,000
$190,001 and over: $51,638 plus 45c for each $1 over $190,000
These rates do not include the Medicare levy of 2%.
Contribute to Superannuation
Superannuation is an effective investment structure that can help you pay less income tax and tax on investment returns. Despite recent changes, contributing to superannuation remains beneficial as it is protected against bankruptcy and can provide death and total and permanent disability cover.
Concessional Contributions
Determine whether you can make additional concessional contributions. This can reduce your personal income tax and help accumulate wealth for retirement. Employees can also make personal deductible contributions, which can now be more accessible due to the loosening of conditions by the government.
Non-Concessional Contributions
Consider making additional non-concessional contributions to your superannuation fund. While these contributions won’t reduce your taxable income, they can help save money for retirement and, in some cases, assist in buying your first home under the First Home Super Save Scheme.
Co-Concessional Contributions
If your spouse’s assessable income is under $37,000, consider making non-concessional contributions to their superannuation fund. This can reduce your taxes through the Spouse Contributions Tax Offset and increase your spouse’s superannuation balance.
Pre-Pay Deductible Interest or Bring Forward Deductible Expenses
If you anticipate a lower income in the next financial year, consider pre-paying deductible interest or bringing forward deductible expenses. This can reduce your taxable income for the current year.
Manage Capital Gains and Losses
Careful tax planning is essential when selling an asset that triggers a capital gain or loss. Deferring the sale of an asset to a lower-income year or holding an asset for more than 12 months to benefit from the 50% capital gains discount can be advantageous.
Utilising Tax Offsets and Deductions
Low Income Tax Offset (LITO) and Low and Middle Income Tax Offset (LMITO)
From 1 July 2022, you may be eligible for LITO if you earn up to $66,667. LMITO ended on 30 June 2022, but before that, it provided offsets for incomes up to $126,000.
Tax Deductions
Common tax deductions include work-related expenses, union fees, charitable donations, and the cost of managing tax affairs.
Salary Packaging
Salary packaging, or salary sacrificing, is when you agree to receive less salary in exchange for benefits like superannuation or car payments. This can help reduce your taxable income.
Organise Expenses, Receipts, and Statements
Collect, sort, and store your expenses, receipts, and statements early to reduce stress during tax time. This is particularly useful if you manage a self-managed super fund (SMSF).
Frequently Asked Questions
1. How do I know which tax bracket I fall into?
You can determine your tax bracket by comparing your annual taxable income to the Australian Taxation Office’s (ATO) published income tax rates and thresholds.
2. Can I change my superannuation contributions throughout the year?
Yes, you can adjust your superannuation contributions at any time. It’s advisable to consult with your employer or a tax accountant to make these changes effectively.
3. What is the Medicare levy and how does it affect my taxes?
The Medicare levy is a 2% charge on your taxable income that helps fund healthcare services in Australia. It is included in your yearly income tax assessment.
4. Are my charitable donations tax-deductible?
Yes, donations to registered deductible gift-recipient organisations can be claimed as tax deductions.
5. What should I do if I have both a capital gain and a loss in the same year?
Capital losses can offset capital gains within the same financial year. If your losses exceed your gains, you can carry forward the remaining loss to offset gains in future years.
Review your financial situation regularly and consider professional advice to optimise your tax liabilities. The financial landscape continually evolves, so having a tax accountant from Perth Tax People can ensure you stay updated and compliant. If you need more personalised advice, contact us. We can help you maximise your tax savings.
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