Tips to help minimise your tax and grow your wealth

With tax time upon us, it is that time of the year to get all your financial ducks in a row for the Government.

Last updated: July 12th 2022

Tax minimisation is an important and legitimate rearrangement of your affairs to minimise the tax you pay. [Source: iStock]

Key points:

There are basic tax deductions you should be aware of when undertaking your tax
End of financial year is a great time to start putting in place solid financial strategies for the new year
If you feel lost, engage a financial advisor or tax agent to assist you with your tax

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Doing your taxes can be tedious, time consuming, and, sometimes, complicated. However, to get the best result during tax time it may be worth going to a professional for help.

If you are dragging your feet on getting your taxes done, you have until 31 October this year to submit your tax return or a bit longer if you go through a tax agent.

It is essential for older people to be aware of what impacts the taxes that they pay will have.

When it comes to organising your finances, according to Aldis Purins, financial planner at WP Financial Planners, “the simple question is would you like to have more money for yourself by implementing sound concepts to build your wealth or would you like the Government to have it instead?”

Mr Purins explains that tax minimisation is an important and legitimate rearrangement of your affairs to minimise the tax payable by using tax-effective strategies that are beneficial for you.

Here are basic tax deductions to be aware of:

Options for right now

Tax offsets

If you are:

A low income earner
Receive Government benefits
A pensioner and older person
Have private health insurance

You may be eligible for special tax offsets to make your yearly tax time more beneficial and affordable. These tax offsets can lower how much you pay to the Government in tax.

For example, if you are over 65 and on the pension, you may be eligible for the Seniors and Pensioners (SAPTO) offset, which can reduce how much tax you pay.

At the moment, the threshold for a single pensioner eligible for SAPTO is $50,119, receiving a maximum offset of $2,230.

If you have taxable income that is below certain thresholds, then you may be eligible to receive the Low Income Tax Offset (LITO).

This is for people who have taxable income that is $37,500 or less in a year, and will receive a maximum offset of $700.

There is also the Low and Middle Income Tax Offset (LMITO), the maximum offset is $675 if you have $37,000 or less in taxable income. And if you have taxable income that goes up to $126,000 a year, you can expect to receive some LMITO.

You can receive the LMITO on top of receiving the LITO.

There are a number of other tax offsets that may apply to you, it can be good to get advice from a tax agent as they will be best placed to find offsets you are eligible for.

Work deductions

If you’re still employed and have left your tax planning to the last minute, generally, work deductions are your only option. However, if you don’t work, then you will not have this option available to you.

To claim work deductions, Mr Purins says it is important for you to log all your work related expenses to use when you are doing your tax return.

Some work related expenses are:

Car and travel expenses
Clothing and laundry
Self-education expenses

Additionally, since working from home is more common, you should be logging your home office hours to get money back for internet, electricity and more.

Of course, there are strict requirements on work expense deductions, for example, the expense has to relate to you earning money and you have to have proof (a receipt).

The Government does look for suspicious work expenses, so it is important you have receipts to back up your claim.

A tax agent can be really knowledgeable about claiming work deductions on your tax return if you need extra assistance.

Log your charitable donations

Do you know that the good deeds you do when giving money to charity is actually tax deductible?

Any donation over $2 can be claimed on your tax, as long as you give to a registered charity. This is a great incentive to give back to your community and those you need, but also benefit you during tax time.

Make sure to keep all the relevant receipts from each donation you make over a financial year.

Too late?

Sometimes you may miss the boat with tax time and that’s okay! It is never too late to start putting solid financial strategies in place for you to benefit from in the next tax season.

Mr Purins says a lot of benefits people want for tax time actually need to be implemented over a whole year, rather than when June rolls around.

He says tax time is a great opportunity for you to reassess your priorities and prepare for the next financial year.

“We encourage people that anytime is a good time to consider how their financial position can be enhanced,” says Mr Purins.

“Things like the end of a calendar year – a new years resolution – or even the end of a financial year, which is the end of one tax year, is a great time to then consider planning for the future and what you need to do to position yourself for success in the future.”

So if you want to enhance your financial position, consider seeking advice from a financial advisor who will also consider how to legitimately minimise the tax that you pay. You can learn more in our article ‘What a financial advisor can do for you‘.

Long term strategies

Put money in your super

Mr Purins says that one good option is to put money into your super. Of course, this should be done ahead of the end of the financial year.

“The reason you do that is because putting money aside for super is much more tax effective than trying to pay the tax and then trying to save after that instead,” explains Mr Purins.

Additionally, the money you put in your super doesn’t disappear! It goes towards building your retirement nest egg.

Beneficial strategies

There are a lot of strategies available that can improve your financial situation and also have tax minimisation benefits.

However, these strategies tend to take time to implement and in many cases, a financial advisor may be the best person to guide you through these plans and methods.

Some strategies may include:

Prepaying interest on any investment loans
Negative gearing
Bringing forward your insurance premiums or paying your income protection
Super co-contributions
Salary sacrificing
Personal deductible contributions
Spouse contributions

These are a few strategies that can be used to minimise your tax. However, Mr Purins says that no strategy is one size fits all and you should be seeking tailored advice from a financial advisor to further explore your financial strategy options.

Seek help

If your financial situation is more complicated, then going to a financial advisor or tax agent for help can be beneficial, rather than going it alone.

A financial expert will take all the information they need from you and explain how you can enhance your financial situation.

Mr Purins adds that he finds a lot of people read other people’s success stories for tax time and believe that can be replicated in their life. However, he says stories of success for others can “be terrible to use for personal advice”.

“The reason you would want to see, for example, a financial advisor is because they will tailor the concepts behind that headline, or anything else you are not aware of, to maximise the financial benefits for you,” explains Mr Purins.

“Get some good advice because it is worth its weight in gold.”

Have you prepared yourself for tax time? Tell us in the comments below.