Effective tax planning is crucial for high income employees to optimize their tax situation and reduce their tax liabilities. As the leading accountant in Northern Beaches Belrose, Wistax would like to share some insight to explores nine strategic approaches that can help high earners make the most of their income while staying compliant with tax regulations.
1. Contribute to Your Superannuation Fund:
One of the primary tax planning strategies for high-income earners is to contribute to their superannuation fund. Additional contributions can significantly reduce taxable income. However, it’s important to stay within the contribution caps to avoid high tax rates. Seek advice from a financial adviser to determine the appropriate contribution amount.
It is also important to remember the unused concessional contribution which was introduced in the COVID years will finish in the 2023/2024 financial year. If you have not utilised that unused or bring forward concessional contribution, please talk to your financial adviser. You also need to give your tax agent a call to find out the exact amount of your unused concessional contribution.
2. Utilize Negative Gearing with Investment Property:
High-income employees often benefit from negatively geared investment properties. By deducting expenses such as loan interests, council rates, and depreciation, they can offset rental income and reduce taxable income, ultimately lowering their tax bill by having a lower assessable income. Please remember the following equation
Taxable income = Assessable income – all work related deduction + rental income – all rental expenses – concessional super contribution
3. Look out for Private Health Insurance:
Private health insurance can help high earners avoid the Medicare Levy Surcharge, especially if their income exceeds the specified threshold. Hence if your reportable adjustable income exceeds 90,000 for single and $180,00 for family, then it is important for you to see that you do have the proper private hospital cover to take for the Medicare levy surcharge.
The Medicare levy surcharge ranges from extra 1% to 1.5% of your taxable income.
Please remember the income threshold is not based on the taxable income, but rather on the reportable adjustable income of taxable income + reportable fringe benefit + reportable super contribution + net investment loss.
The savings from not paying the surcharge can outweigh the cost of insurance, making it a strategic tax planning move.
4. Salary Sacrifice for Vehicles:
High-income earners can benefit from salary sacrificing a vehicle, which reduces their taxable income. Options such as novated leases, operating leases, and hire purchases offer various ways to structure this arrangement, potentially leading to significant tax savings. Please talk to a specialised tax adviser on the issue.
5. Make Tax-Deductible Donations:
Contributing to registered Australian Deductible Gift Recipients (DGR) can lead to tax deductions. Donations over $2 to qualified charities can be claimed as deductions, helping high earners support causes they believe in while reducing their tax burden. However, it is important to keep the invoice, and also ensure the organisation you are donating to is a GIFT deductible recipient, you can find out this from ABR site.
6. Secure Income Protection Insurance:
Protecting one’s income through income protection insurance is essential for high earners. While policy specifics should be discussed with an insurance professional, paying premiums personally can often be claimed as a tax deduction. Please talk to a licensed financial planner on the topic.
7. Invest in Self-Education and Training:
High-income employees can deduct expenses related to self-education, professional development, or training if directly relevant to their job responsibilities. This strategy enables them to enhance their skills while reducing taxable income.
8. Structure Investment Income Thoughtfully:
Carefully structuring ownership of investments can lead to significant tax advantages. Selecting the right entity to hold assets can result in varying tax rates, potentially saving high earners substantial amounts over time.
9. Ensure you have a valid notice to claim super contribution as deduction before you lodge the tax return:
It is important to ensure that you have a valid notice to claim super contribution as deduction from the ATO before you lodge the tax return, as if you had transfer the money to the super, and did not get that notice, ATO could potentially not be able to classify that amount as concessional contribution, hence you will lose the deductibility of the super contribution.
10 . Recording down the time you work at home for your employment
Recording Your Home Work Hours:
Keeping a diary of your work hours spent at home is a crucial step. While the ATO eliminated the 80 cents and 52 cents per hour methods, they introduced the revised 67 cents shortcut method. By maintaining a record of your hours worked at home, you can maximize your tax deductions.
Revised Shortcut Method Benefits:
Under the new 67 cents shortcut method, you can cover various running expenses for your home office. If you work around 10 hours weekly from home, this could translate to approximately $348 in deductible expenses.
In summary, meticulous record-keeping of your home work hours and utilizing the revised 67 cents shortcut method can lead to significant tax deductions, especially if you work around 10 hours per week from home.
High-income employees have multiple avenues to strategically plan their taxes, ultimately maximizing their income and minimizing tax liabilities. Careful consideration of these tax planning strategies, along with guidance from financial and tax professionals, can help high earners achieve their financial goals and secure a more prosperous future. Please come and talk to the leading accountant in Northern Beaches Belrose Wistax, make an appointment now!