Innovative tax saving techniques for individuals and families

By Nicole Comendador

December 04 2023
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Tax time can be daunting for many Australians, but with some innovative planning and smart strategies, individuals and families can maximise their tax savings.

Tax laws can be complex and ever-changing, so staying informed and being proactive can significantly reduce your tax liability. Here are some innovative tax-saving techniques to consider.

Innovative tax-saving techniques for individuals and families

1. Income splitting to reduce taxable income

One way families can save on taxes is through income splitting. This involves distributing income within a family to take advantage of lower tax rates for lower-income earners.

For example, investing in the name of a non-working or low-income-earning spouse can result in investment income being taxed at a lower rate.

Similarly, a family trust can be utilised to distribute income among family members strategically.

2. Salary sacrifice arrangements

Salary sacrificing into your superannuation can be a tax-effective way to boost your retirement savings.

By contributing part of your pre-tax salary to your super fund, you can reduce your taxable income while investing more into your super, which is taxed at a concessional rate of 15 per cent.

This strategy works well for individuals in a higher income bracket.

3. Use of tax-deductible debt

Tax-deductible debt is debt incurred to produce taxable income, and the interest on this debt is often tax-deductible.

For instance, if you take out a loan to invest in income-producing shares or property, the interest can be claimed as a tax deduction.

Restructuring your debt to make it tax-deductible requires careful planning and advice but can be an effective tax-saving technique.

4. Investing in tax-effective vehicles

Investing in tax-effective vehicles such as insurance bonds or certain managed funds can also save on tax.

These investments typically pay taxes within the fund at a rate of 30 per cent, which may be beneficial for individuals taxed at a higher rate.

Furthermore, if held for more than ten years, gains from insurance bonds are tax-free when withdrawn.

5. Claiming all deductions and rebates

Ensuring you claim all allowable deductions is essential. This may include work-related expenses, self-education expenses, and home office costs.

It’s also important to be aware of any rebates you may be entitled to, such as the private health insurance rebate or the offsets for low and middle-income earners.

6. Deferring taxable income

If you expect to be in a lower tax bracket in the following year, deferring income until after June 30 can reduce your current year’s taxable income. This may include deferring the sale of assets that will result in a capital gain or delaying the receipt of investment income.

7. Making charitable donations

Making donations to registered charities not only supports good causes but can also provide tax benefits. Donations of $2 or more are tax-deductible, and this can be an effective way to reduce taxable income. Keep all receipts to substantiate claims.

8. Prepaying expenses

Prepaying deductible expenses can bring forward tax deductions into the current financial year. This can include prepaying interest on an investment loan or prepaying income protection insurance premiums.

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There are numerous strategies that individuals and families can employ to reduce their tax liability. However, it’s important to tailor these strategies to your specific financial situation.

Always consult with a tax professional or financial advisor to ensure compliance with tax laws and maximise your tax-saving potential. By being innovative and informed, you can not only ease your tax burden but also improve your long-term financial health.

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