Tax minimisation
Australia is a self reporting tax system; which means it is your responsibility to understand all the rules and report accurately.
The ATO provide great resources to understand the way to apply the tax rules, and if in doubt you should use their site as the first resource. The following sections aim to give an overall understanding of applicable tax laws and strategy to use for tax planning.
There are four categories of tax minimisation, not all of which are legal.
Tax Evasion - Illegal actions like not reporting income, or falsifying deductions.
Tax Avoidance - Schemes that technically follow the law, but defeat the laws intent. Basically if you're doing something just for the purpose of reducing tax.
Tax Reduction TR - Methods which reduce the tax payable forever; e.g. Super Contribution, Death Benefit, Debt Recycling.
Tax Deferral TD - Delaying the full payment of tax so you can utilise the funds now for further investment; e.g. Corporate Beneficiary, Loss crystallisation, Depreciation
Effective tax reduction and deferral methods can reduce tax by up to 20%; worth around 2%pa with no additional risk. The downside is it does take some additional planning, and activity each year.
The first step to minimising tax is understanding how marginal tax rates work; and how different entities are taxed.
Understanding tax rates
Individual tax rates increase as you earn more money, but that doesn't mean you need to pay tax on the previous taxed amounts - going up a marginal threshold doesn't mean you will be worse off - all your income doesn't get taxed at the new higher rate, just the amount above the next threshold.
Companies, trusts and superfunds are different, they have a flat tax rate regardless of how much profit they make.
The Medicare levy is a 2% tax on total income, but below $27.2k you are exempt from the Medicare levy. Between $27.2k and $34k the Medicare levy is charged at 10% (16+10 = 26%), so by the time you get to $34k you're paying 2% on $34k and your marginal rate drops back down to 18%.
Div293 which is an additional 15% tax on concessional super contributions has a similar impact, jumping your marginal tax rate up for a portion.
Individual Marginal Rates
Company Tax
Trust
Super
Tax planning strategies
TRConcessional Contributions - Maximise to the cap ($30k) for any cash you don't need until retirement. Utilise any unused caps from the previous 5 years and contribute to partner's super if they are not earning enough.
TRDebt Recycling - using excess cash to pay down homeloan before investing to make your home loan deductible; effectively halving the interest cost of a home loan if you're in the top tax bracket.
TDDepreciation Schedule - Get a depreciation schedule whenever you buy property done, and ensure capital improvement works get added to the depreciation schedule.
TRFamily Trust - Set up when you will have enough investment returns and income streaming available that it is worth it.
TDTRCorporate Beneficiary - set up corporate beneficiary with Family trust when you have enough non-discounted capital gains income
TRSMSF - You can choose capital appreciating assets which reduces tax as you move into pension phase without selling.
TRDeath Benefit - Sell assets and withdraw super and pension balance before death to avoid the tax.
TDCGT Reduction - Parcel apportionment to reduce CGT owning and track ETF Cost base adjustments
TRCGT Discount - Delaying asset sale until after 12 months of ownership if possible
TDCGT Losses - Sell loss position assets to offset gains in the same year.
TRDeductions - Keep receipt records for any work or investment related expenses.
Utilising just a few of the methods listed on a $150k income could result in a 13% increase in take home cash. This is achieved by having two beneficiaries with no taxable income, such as a parent who is retired or 18+ child that doesn't work. Income is distributed in a way to:
- $18k each utilising 0% tax rate
- $30k each to use the entire concessional super cap at 15% tax
- $30k each at the 19% bracket
- Remaining into a corporate beneficiary so you never hit the 32% tax bracket.
Impact of structuring on tax
Standard $150k + Super
Avg Tax: 25.2%, Retained: $125.6k
Trust + Corp Ben
Avg Tax: 15.0%, Retained: $142.8k
Tax structure simulator
Generate a structured tax chart based on your income and structure preferences.
Each adult gets their own tax brackets. For example, with 3 adults: 0% tax applies to $54k (3 × $18k), 15% super applies to $90k (3 × $30k), and so on. The chart shows the combined effect across all adults.
Generated tax structure chart
| Payer | Tax Rate | Bracket Cap $k | Income Range $k | Tax $k |
|---|
FAQ
Potentially up to 30% of your tax bill through proper strategies. The exact amount depends on your situation and the strategies implemented.
Basic strategies yes, but seek personalised professional advice when you are unsure. Tax laws are complex and change frequently.
At least annually, or when circumstances change significantly. Tax laws and your situation can change frequently.
Yes, when properly implemented within tax law. Avoid aggressive schemes and seek professional advice for complex strategies.
5 years from the date of the lodgement that the document is used. For example, the buy records of a share purchase need to be kept for 5 years after you report the capital gains on sale.