Paying tax is good.
You should be paying more tax.
Being in a position where you are paying lots of tax is a great problem to have. This is purely because the amount of tax you pay is a direct correlation with the amount of income you are making.
After all, having more income is what most people aspire to.
As part of a robust tax planning strategy there are certainly ways you can defray the amount of tax payable.
So one of the questions we often get asked coming into the end of the financial year is “How do I minimise the amount of tax I pay?”
In the lead up to June 30, here are two strategies which can help reduce your tax liability.
Convert Tax Deductible Payments into Yearly Payments
Payments such as your:
You can carry forward the future premium or interest payments and get the tax advantage of these payments in this financial year.
Remember though that ordinarily you are already paying these items monthly which means you have been spreading the cash flow risk over the course of the year. In order to maintain this benefit next financial year you will probably have a lump sum payment about the same time you did it this year.
Just be aware that there are risks with this especially if you cancel a policy or liquidate an investment in the new financial year. Even though this is prepaid, if you no longer hold that investment you would lose the deduction and would need to amend returns.
Making tax deductible contributions to superannuation
You may be coming into bonus time with your work.
Say for instance you are to be paid a $20,000 bonus. A high income earner will lose about 34% of the money straight to tax if they take it in cash.
Another option is to salary sacrifice into your superannuation. This means that it is only taxed at a maximum rate of 15%.
So in the above example, you have more than halved the tax burden (a saving of over $3,800).
The key issue here is you would need to have a salary sacrifice arrangement in place prior to the bonus being paid as you can’t salary sacrifice retrospective bonuses.
In addition, the money can’t be accessed until you reach your preservation age or have a condition of release from superannuation. So I would strongly consider you to ask the question, “Do I need this cash flow today?”
If the answer is no, then we can put that towards our longer term savings for retirement and pay a lot less tax along the way.
Saving for the longer term, and paying less tax in the short term. Win, win!
To summarise, don’t be scared of paying tax but also ensure you are using every available strategy to better your future.
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