DIY Approach To Save Maximum On Tax Liabilities

November 23, 2021    Accounting Services Perthwa

When you are running a business in Australia comes along with many tax liabilities, you will need to pay different types of taxes. Paying taxes within time is one of the essential liabilities of a company, and it may take out a significant amount of your business income. However, there are some effective ways you can reduce your tax liabilities in Australia. In this blog, we have discussed several strategies you may take related to how to pay less tax.

Use salary-sacrificing

Salary sacrificing can be an effective way to reduce your taxable income in Australia. It is also known as salary packaging, which works a few different ways. Several common salary sacrifice benefits include superannuation and motor vehicles. 

For example, it can be used to pay for a new computer, car, insurance, mortgage payments, rent payments, and other benefits, which are also known as fringe benefits. It has been found that Australians save thousands of dollars in taxes each year using this method.

Keep all the tax and financial records accurately

When asked by the Australian Taxation Office, you will need to show these records for tax deduction claims. Now, if you have no proper filing system, it can create a lot of trouble for your business. Most Australian companies cannot receive tax deductions because of this negligence. 

A lot of people wonder whether they need to keep track of every deduction their business incurs. However, the process is complicated, and dedicating a few minutes a day can keep your logbooks updated. 

You have to make sure that all the receipts are correctly organised, accessed in a filing cabinet or a file folder. This practice will save considerable time. Many personal tax accountants Perth can help you keep all your business financial and tax records accurately. 

Claim all deductions

If any money is spent on buying anything related to your business, you can claim it. You should make sure that you declare all tax deductions that will help you pay less tax to the ATO. Many things may seem insignificant but eventually can lead to significant savings at the end of the financial year. For example, if you buy something for your business and use it for personal use, you can still claim the deduction for the time you spent on it for business-related work. 

If you are confused about whether or not it is possible to claim a specific purchase as a business-related tax deduction, you should keep the receipt and request your tax agent to file the tax return for you.

Donating to a registered charitable organisation can be beneficial

Every money you donate to an authorised charitable organisation will be considered tax-deductible. Once the donation is made, the organisation sends the donator a receipt. When the tax season comes, you can include this charitable receipt while filing your tax return. However, you must remember that you will not get back this money as a tax refund. Instead, the amount will be deducted from your taxable income.

Adding your super fund can reduce your tax in Australia

If you ask tax experts about how to pay less tax in Australia, many of them will suggest contributing to you or your spouse's super fund. In this country, the tax rate for concessional super contributions is 15%. Two common types of concessional contributions include personal deductible contributions and salary sacrificing. On salary sacrifices, there is no limit on income tax.

Even if you are an unsupported or a self-employed taxpayer, you can contribute to your superannuation fund and claim a full deduction.

Having private health insurance can also help you save a significant amount on your taxable income

Medicare is Australia's national health insurance scheme, and at least 1% Medicare Levy Surcharge will be required for the following conditions. 

  • You do not hold private hospital insurance, are unmarried and earn over 90000 dollars annually.
  • You do not carry private hospital insurance, have a family and earn over 180000 dollars yearly. 

On the other hand, holding a private healthcare scheme will cost you much less. However, you should remember that you can only go for this option if you think it suits you.

Reduce capital gains

If you sell any significant business assets in a specific financial year, it will be subject to a capital gains tax. These assets may include shares or property. If the asset is held for a minimum of one year, a 50% CGT (Capital Gains Tax) will be charged. In addition to your marginal tax rate, these taxes must be paid in the year the asset is sold. If you prepay the necessary expenses on these investments up to one year in advance, you can save considerable taxes. 

Also, if your property is your PROR (principal place of residence), the principal residence exemption can be claimed from your CGT for your house.

Prepay expenses

Paying some income-related costs in advance can also minimise your taxable income. Deductions can be moved forward to the next economic year ensuring a higher tax refund. However, you must remember that all these prepaid costs should be under one thousand dollars or satisfy the 12-month rule. 

You should not include any non-taxable income

One of the most vital factors you must keep in mind regarding tax deductions in Australia in 2021 is that you should not include any income that is considered non-taxable by the ATO. These incomes include:

  • Disability support pensions offered by Centrelink to people who have not crossed the pension age
  • Carer allowance and childcare subsidy
  • Student allowances for those below 16 years of age
  • Particular scholarships and grants

Ending note

Claiming tax deductions is one of the privileges you can enjoy as an earning person in Australia. If you think you will find it challenging to file a tax return, you can get in touch with Accounting Services Perth WA to help you with an effective tax planning strategy.

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