Australia’s strong economy provides a favourable environment for high income earners. Unfortunately, with increased earnings, comes increased taxes. And with increased taxes, comes greater responsibility to manage your tax obligations effectively. This is where strategic tax planning comes in! For high income earners, it can be the difference between paying more than you need to, or just the right amount to the tax man. In this article, we’ll explore some tax planning strategies designed for Australian high-income earners.
Where to start?
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Understand Your Tax Obligations:
To plan your taxes effectively, it’s important to have a good understanding of your tax responsibilities. Australia has a progressive tax system, so the more you earn, the higher your tax rate. A good place to start is to familiarise yourself with the tax brackets and rates that correspond to your income level. This will allow you to accurately calculate your tax responsibilities.
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Maximise Superannuation Contributions:
Superannuation provides substantial tax advantages for individuals with high incomes. Contributions to superannuation are taxed at a concessional rate of 15%, significantly lower than the typical tax rates for high earners. To benefit from this, consider maximising your superannuation contributions up to the yearly contribution limits. This not only secures your retirement savings but also lowers your taxable income effectively. *Be aware of Div293 tax which will tax any concessional superannuation contributions that push your combined tax plus super income over $250k.
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Make the Most of Salary Packaging:
If you’re a high-income earner, salary packaging is a great way to structure your remuneration package, as a means of lowering your taxable income. This is achieved by incorporating benefits like cars, laptops, or extra superannuation contributions into your salary package. While some employers offer salary packaging options, others don’t. As it’s a strategy that needs to be supported by your employer, it’s worth raising in remuneration negotiations during yearly performance reviews or when starting a new job.
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Take Advantage of Negative Gearing:
Property investment is a common tax planning strategy used by high income earners in Australia. It allows you to take advantage of negative gearing to reduce your tax liabilities, while simultaneously growing your wealth over time through property value appreciation. Negative gearing involves having expenses from an investment property surpass the rental income, leading to a net rental loss. This loss can then be offset against (or deducted from) other taxable income like salary or business earnings, decreasing your total tax obligations. *Keep in mind that if you sell the asset any capital gains will be assessed in your tax return.
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Explore Tax-Deductible Investments:
In Australia, some investments provide tax deductions that can assist high-income earners to reduce their taxable income. Investments Early Stage Innovative Companies (ESICs) come with generous tax rebates and future offsets if you qualify as a non-retail investor. Remember that these types of investments carry additional risk to regulated investments and as a sophisticated investor disclosures from the company can be minimal. You might also like to consider donations to charitable organisations or environmental projects, which may also be tax-deductible, offering additional avenues for tax planning while backing causes close to your heart.
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Stay Updated on Tax Law Changes:
Tax laws are constantly evolving, making it vital to stay informed for effective tax planning. By staying updated, you can be proactive in adapting your tax strategies to align with changes. When it comes to tax laws, seeking guidance from a tax advisor or accountant is a great place to start, as their thorough understanding of the complexities of the Australian tax system will ensure you’re taking advantage of all tax-saving opportunities available to you.
To sum it up…
Strategic tax planning is not a new concept and has been embraced by countless high-income earners wanting to keep more of their hard-earned money in their own pockets, rather than the tax man’s. By managing tax obligations, maximising superannuation contributions, using salary packaging, considering negative gearing and tax-deductible investments, and staying informed about tax law changes, you can optimise your tax outcomes and reach your financial objectives.
If you’re new to tax planning and would like to speak with an accountant to create a tailored tax strategy for you, please don’t hesitate to book a complimentary “New Enquiry” appointment for more information on our tax planning services.
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