No one wants to give the tax-man more than the minimum.
eg I read about some guy on whirlpool who "salary packaged" nearly all his pay as "meal entertainment" and then somehow funnelled it out, though that's leaning more towards "tax evasion" than "tax minimisation"..
What Are Some Ways You Have Been "Minimising Tax"?
2real4u on 03/01/2015 - 18:22
Last edited 03/01/2015 - 18:23
Last edited 03/01/2015 - 18:23
Comments
That's quite lovely (even if the initial reason was to minimise her own tax).
:)
:) It really was lovely. I think they sent my mum thank you letters as well.
Be Apple.
Or any multinational corporation…
starbucks, ebay, paypal, google
PayPal is owned by eBay, so you can scratch that one.
Tax pays for things like our hospitals and medicare and schools.
A lawyer might want to comment before people start replying to this thread.
I feel for those who are having to pay nearly 50% at $180k income tax (before GST/Council Tax/Water Tax) AND being treated like a leper because apparently, a lot of people think they are not taxed enough AND they are getting their citizenship benefits taken away to appease these people.
So to reply to your comment, I don't condone tax minimization but I certainly understand why people doing it.
What citizenship benefits?
Would OP benefit from legal advice from a tax accountant or lawyer?
A person could potentially get these "citizenship" benefits as listed in here http://www.humanservices.gov.au/customer/dhs/centrelink
I don't mind not getting any of these but I do mind being branded "millionaries" and certainly do mind the continuous chant from sections of the society who loudly saying that I am not taxed enough as if once someone reaches a certain threshold of income, that person ceases to be "Australian" because he/she is not paying his fair share of tax.
@burningrage: You're still clearing $90k a year. Congrats, That's awesome money. I wish I earnt that. Wouldn't even need to use ozb anymore.
LOL. I wish I earn post tax $90k too but hell no…
Double the stress and the tax man gets 50% of it.
I'd rather stop at 37% upper threshold before tax and enjoy life and OzB everyday.
But don't have to earn $180k pre tax to see the problem… I am obviously pro-Entrepreneur person.
Regards
Zz
@sachz:
You'd be surprised.
A lot of top earners are tighter than a fishes arse (tighter than the average Joe Blow) when it comes to prising $ out of their fist.Know that first hand. ;-)
The govt only grabs 50% of what you earn above $180k. Not 50% if you earn $180k. So to pay $90k in tax - you would be earning around the $250k mark
So earning more is always beneficial.
tax minimization is totally legal,it is not tax evision.
Note that we have a progressive income tax system. At $180k they are paying $63k in tax. This is effectively 35%. Yes, every dollar over this is now taxed at 'nearly 50%', but even earning $360k the effective tax rate is 41% - closer to 35% than 50%.
Perhaps you are aware of this - I figure it is still worth mentioning as I know some people will take a "50% at $180k" statement to mean these people are paying $90k in tax.
Hear, hear. Praise the lord, thankyou muchos. A-freaking men!
you forgot div293
I'm sure all of us earning less than 180k pa feel sorry for those that are >.>
Very refreshing to see a comment like this, it's very common to hear people (generally from the left) making a lot of noise about forcing more money out of some of the most productive people in society.
The fact you make more money doesn't necessarily mean you're more 'productive'. It's a false equivalence.
Agreed, while on that paygrade SOME can be in COUNTER-productive positions even.
Thank you for pointing that out.
I think we need to define what "productive" means.
I am struggling to think if Warren Buffett, Bill Gates, Steve Jobs were NOT productive in their hey days.
delete
it dosnt work that way mate, if you pay 50% over 180k,..
only 30% for the 50-80 k
some people dont know how it works.
my mother actually works for the ATO
youd be surprised. a lot of people with high incomes pay a LOT less tax than what youd think or what they should be for that matter.Have they factored in the possibility that high incomes tend to have other sources of income such as own business which generated losses, which offset the overall income thereby reducing the taxable income?
I hope when people start talking about "high incomes pay a lot less tax", they need to disclose if those people have businesses or other sources of income.
There was once The Age article that talked exactly like this. Big Companies paid very few tax but FORGOT to mention that they had carried over tax losses from previous years.
Are you asking whether the ATO takes such factors into consideration…?
Nah probably not - I mean, it's only the ATO - what would they know rightA lot of large companies and high income earners jump through loopholes within loopholes to minimise tax. Sometimes not entirely legal, and sometimes they get caught out.
As an accounting lecturer once said: Tax minimisation is legal, tax evasion is not. Some schemes might be legal but not ethical, but that is a different discussion.
Sorry! I didn't mean to neg you, was just browsing and clicked the button by accident.
As a lawyer my comment would be, "My retainer is $400 an hour plus GST, but I'll give you a discount for cash" ;-)
http://www.smh.com.au/national/rich-lawyers-dodging-income-t…
=D
"Mr Archer has no assets to his name, because everything is owned by his wife, Sarah. As a result, his key creditor (the Tax Office) can't sell the Paddington house to satisfy its debt. Local real estate agents say it is worth at least $1.3 million."
lol there's theft which gets you into prison, and then there's legal theft (pun intended)
There was, maybe still is a publication called the Independent Taxation Examiner. I found it very useful for claims such as $120 laundry without receipts etc. The tax in this country comes from not only income tax, but in GST, stamp duty, fuel excise etc, etc. Make sure you claim all that you are entitled to, but don't feel like its a system that needs to be beaten. We are very lucky with the services in this country, but unfortunately sometimes those who control the nations/ states finances leave a lot to be desired!
Max laundry claim is $150
I would really like to know this!
My flatmate guy who is responsible for the flat, accepts only cash. That means no internet banking for rent, which is inconvenient for me, but it's good for tax or something apparently. Please explain someone?
I think you can also donate $$$$$$$$$$$, and get it back?
Also it's apparently better to be married, for tax reasons or something….
I am clueless :(
it really depends what you mean by your flatmate being responsible for the flat. The fact that he accepts cash only means he probably has some interest in ownership and does not declare the cash you pay him as income, on which he would otherwise be taxed.
If you donate money to a registered charity you don't get that money back. You get a reduction in your assessable income, so effectively you pay the difference between your top income tax rate and the amount of the donation. For example, you donate $100. If your normal tax rate was 30% you would pay $30 in tax. By donating that $100 to a registered charity that accepts tax deductible donations, you loose $100, but gain the $30 you otherwise would have paid in tax. Your loss from such philanthropy would be approximately $70, perhaps a little less because of avoiding the Medicare surcharge on that $100.
As for being married being better for tax, the benefits if any would be marginal (super contributions spring to mind), but I don't know enough to advise you to get married to reduce your tax.
So, regarding the donation, if you wanted to keep more $$$ for yourself, do not donate?
If you donated $100 as in your example, you lose $100, but will get $30 back. You'll be left with $30.
Conclusion: Do not donate that $100. Pay the tax of $30, and you'll be left with $70…?
Yes, this is basically correct.
My understanding is as follows.
A tax deduction is typically just a way of minimising your taxable income - it doesn't directly reduce your tax and certainly doesn't reduce your tax dollar for dollar.
Say I am an normal PAYG employee earning $100,000 gross.
I would be paid $3846.15 before tax a fortnight, my employer would withhold $1038 in tax, and I would receive $2808.15 into my bank account.
On an annual basis that would be $100,000 gross, $26,988 in tax paid, and $73,012 net into my bank account.
Now - those numbers are calculated on your taxable income being the full $100,000.
If you paid $400 to your favorite charity
$50 to a registered political party
$10 in bucket donations
$100 in work-related clothing
$40 in laundry expenses
$300 in work related travel
$300 in work related education and training
$400 in professional memberships
$400 in home office expenses
- just to name a few of the typical ones,
your taxable income has now reduced by $2000
Your taxable income is now $98,000 and you should have only paid $26,208 in tax
Meaning that spending $2,000 has saved you a grand total of $780, which you might get back by way of a tax refund (putting aside all other issues like Medicare).If you donate $100, then $100 including the 30% tax you would have otherwise paid to the government goes to the charity of your choice. It's meant to be an incentive to donate actually…
Another way to think of it is that you get to directly decide where you tax dollars go to… e.g. you want your tax dollars to be spent on medical care for the less fortunate - so you donate to MSF - and your 30% tax dollars goes to that cause (instead of what the government thinks they should spend the tax on e.g. health, education, defence etc).
Anyway… The whole point of donating to charity is to be charitable and donate! (not save money lol)
@eve:
I'm learning so much tonight, wow…
So, to keep all of that $$$, do some people have 'charitable organisations', and donate all their $$$ to their organisation?
If this is possible, then OP, this may be an unethical (but perhaps legal) way to 'minimize' tax.
@inose:
The 'charity' must be a DGR to be eligible for a tax deduction.
You must qualify to be a DGR.
You're missing the point. You don't donate to make money, you do it to support the charity.
If you donated $100 as in your example, you lose $100, but will get $30 back. You'll be left with $30.
Yes that's true. That's because the donation is tax deductible. Essentially, what that means is that you can take that out of your pre-tax income. Other things are tax deductible as well, such as your business expenses and depreciation.
Conclusion: Do not donate that $100. Pay the tax of $30, and you'll be left with $70…?
All you're doing is giving away $30 for nothing. You started off with $100, so hey, let's give $30 to the ATO and we'll end up with $70, yay. Mod: Removed personal attack
Apologies for that!! I'm really embarrassed.. Hope that you keep learning lots from the thread!!
Are you able to provide a reference source for your first statement about income tax and spouses?
The first paragraph is wrong. As a couple you still pay tax on whatever your individual income is.
The second paragraph deals with complex rules which you should get an accountants advice on.
The third paragraph is not true either. The donation has to made to a Deductible Gift Recipient. Not all charities qualify for this.
lol this first paragraph is so wrong it blows my mind
When married or in a defacto relationship your spouses income is included in your return to calculate and determine a number of things. These are the three main things, there are others but they are more complicated
- whether you are liable for the medicare levy surcharge and to what extent i.e 1-1.5% - income tested
- the amount of phi rebate you are able to receive i.e (29.04-0%) - income tested
- whether you can claim a spousal rebate - income tested
This splitting business is complete nonsense aand might have been the case years ago
Again you're wrong, not all donations are tax deductible. You can only claim deductions to Deductible Gift Recipient (DGR) registered entities. To determine this search for the charity/group on 'ABN lookup' and it will tell you if they are deductible. You're also not allowed to claim deductions to further losses either, so if you or your spouse has a negative income (expenses exceed income) you cannot claim your deductions but you can carry them forward to years when you make an income (i think there may be a 3 year restriction on the quarantine)
Splitting income applies in US not here.
Wow - I wish this was how it worked.
I am stunned to find someone who speaks so authoritatively about something they clearly have no idea on.
As Tohara said, wrong, wrong, wrong - combined income is only relevant to a few key things.
Salary sacrifice into Superannuation is the best legal deal around! Instead of paying your marginal tax on the amount, you only pay the 15% contributions tax. The down side is that you lose access to the money until…………………. (Blank space indicates that the way that Governments keep playing with superannuation, rules can & do change very quickly)
Actually offshore vehicles are the best legal deal around. Try zero tax and access to your money anytime. Doesn't work for PAYG employees easily though
The problem with that your tax-free threshold is reduced by the amount of your overseas income so you end up paying extra tax in AU anyway.
For it to work you need to have seperate legal entities (companies) which you trade with and each pays the local tax on the profits they make, but even that is very questionable and is what governments are cracking down on.
Just quickly for people's benefit and to expand on the info from "peck"; there is limits you can contribute concessionally (before tax) though, in 14/15 $30k if under 50 and $35k if over 50 and these are the all up figures including your employer contributions.
The downside "peck" touched on is a big one, unless you are close to your preservation age (age which you can access your super). This is 60 years old if born on 1/7/64 and after, with plans to increase to higher preservation ages, 65-67 having been floated. This means no matter how much money you have in super you will not be able to access it before your preservation age, unless you have a terminal illness, severe hardship, incapacitated etc. I don't think a lot of young people realise what could potentially happen if the preservation age is increased to say 65-67 and they got to say 55-60 with super balances of $1mil plus, with house paid off and would like to retire and live of their super. By rule of thumb, if you own house with no debt, have $1mil+ in super, conservatively invested earning 5%, this should be enough to live off if super remains tax free. They would either have to continue working, live of savings etc. It's a scenario no one in there 20's, 30's or 40's is really thinking about.
Summing up, you need to consider your age when putting any extra into super due to access restrictions and your most likely better of reducing any debt before adding more to super.
There is so many rule and options out there so seek Financial Advice if you want to find out what is best for your circumstances.
I don't expect to ever see any of the money in my superannuation account. As far as I'm concerned, the ~9% compulsory superannuation contribution is just a tax. Voluntary contributions? Why would I volunteer to pay extra tax?
I've got probably 40-50 years worth of work left, and who knows what the superannuation system will look like in half a century.
By all means save and invest for the future, but I certainly won't be putting my money somewhere where the Government controls it.
NB: I appreciate people who don't have as long left in the workforce don't face as much uncertainty.
The super funds love compulsory super. A lot of employees are locked in to their fund by their employer, meaning the fund is earning fees from you whether you want the service or not! There's a reason SMSFs are the fastest growing category of super fund (in terms of number of people using them).
Hear hear. I once worked as a tax accountant (now in small business) and I still agree that paying down your debts is much more important than funneling money to super, unless you make a lot and don't know what to do with it tax wise.
@BartholemewH: If in a biz most owners do the standard: buy a 'company' car, 'company' boat, and if you're turning over more than $50mn a 'company' plane.
@adamren: Around here most buy an agricultural property with primary producer concession. Let the deductions begin.
@BartholemewH: Ah the hobby 'farm'. Very good though. Buy/Sell water licenses too.
So want to do this. Just need a spare $5mn.
@ilikeradiohead: I used to work in super. You can choose which fund you want and your employer has to pay into that one. Take an evening and look at the fees your fund is charging you and much like utilities compare with other funds.
@Third_Gear: I'm from WA so there's only one utility haha, but I agree there is competition in the sector and switching is relatively straightforward.
If I am in that situation say 30 years later, I would choose permanently leave Australia (eg migrate to Europ and give up Aussie citizenship), therefore I can withdraw my 1million plus super.
and I can sell my properties in Australia, and buy a decent ocean view house in mediterranean countries. :P
But at that time a decent ocean view house will be 30 times the current price due to inflation and market demand.
@OP nothing dodgy about salary sacrificing for meal entertainment though you have to be employed by an FBT exempt institution to access this (charity, hospital etc). The FBT concessions are deliberately there to help those institutions attract staff when they can't pay the same $$$ as the commercial sector. If you salary sacrifice for meal entertainment then 'funnel' the money for something other than meal entertainment then that's fraudulent.
Speaking of legimately reducing your tax bill, simply make sure you claim all the deductions you're entitled to e.g. home office deductions if you have to work from home sometimes, depreciation on an investment property etc etc.
Salary sacrificing into super is a good idea, tax advantage aside (and it's a whopper especially for those on the higher tax brackets) most people won't have enough to set themselves up for life without contributing above the 9.5% SGC amount
It's not as attractive as it used to be since the concessional limits where reduced but here is an example;
If you are at the top tax bracket so $180k+, at $180k you are on an effective tax rate of just over 32% ($58,147 of tax) inc medicare levy and $200k just under 34% ($67,947 of tax) if inc medicare levy and budget repair levy.
Say the person earning $200k is under 50 their concessional limit is $30k. They get Super Guarantee of $19,000 meaning they could Salary Sacrifice $11,000 to super. They would lose $1,650 on contributions tax with $9,350 going in to their super. Their taxable income would be reduced to $194,000 with tax payable of $62,557 + $1,650 of contributions tax = $64,207. This reduces tax by $3,740. At $180k it reduces tax by about $2,838.
For those over 50 and that can contribute up to $35k the reduction in tax is greater.
There is one extra bonus of contributing into super for your example of the person on 200k (assuming they're a net saver). The money gone into super will then just be taxed at the super rate of 15%, rather than their top marginal rate of nearly 50%.
Of course, as alluded to before, the uncertainty of what governments may do to super in future and lack of access to funds is also a consideration.
Yup, seen a few payslips of charity workers, and the salary sacrificing stuff that they do. I was a bit miffed at how little they contributed to the tax man. The contribution to society however; kudos!
I work for a government agency which is listed as a "benevolent institution"/charity which the ATO allows a 30 percent fringe benefit tax exemption
so whilst my salary for the government level position I'm employed at is not that great (it's comfortable) it is the salary sacrifice component that makes my income pretty good.
Especially compared to gov't workers at the same level but who are employed by non-benevolent institutions.
I salary sacrifice my mortgage repayments. other people at work do their car loans, rent, bills.
why is salary sacrificing mortgage payments allowed?
don't know. I've been doing it for 5 years.
You can pretty much salary sacrifice anything. Ask health workers who salary sacrifice their credit card bills each month :P
@sagrules:
Ha pretty much…FBT is a messed up area and I steer clear from it as I find it 9/10 is non beneficial unless your in certain industries or earn a heap of mulla. However I learned an interesting thing:
Pay for parking at work and it's not claimable. However if you get your employer to pay on your behalf (Fringe Benefit) they are allowed to claim it as an exempt benefit to them. Big what the!?
@fredblogs: my HR manager filled in the paper work -he had no issue with it. it was sent to Remserv (salary sacrifice dudes)- who also processed it with no issue.
as I said above, I work for a quasi-govt benevolent institution so the rules for salary sacrifice/FBT are different to regular businesses or government departments in terms of the amount that can be SSed. hence, whilst other people salary sacrifice only minor amounts, I can SS my mortgage repayments - a significant amount.
https://www.ato.gov.au/general/fringe-benefits-tax/in-detail…
Assuming it's an FBT exempt employer, they'd claim FBT exemption whether they paid the car park directly (car parking benefit) or if they reimbursed you (expense payment benefit). You can salary sacrifice for either type of benefit :-)
I heard a multi-millionaire investor say that you should want to pay more tax. Because paying more tax means you are earning more!
Therefore, I want to pay more tax!
Conversely, you can decrease your tax by decreasing your income. For example you can decrease the number of hours worked. Taken to the extreme, get your income under the tax free threshold and minimise your taX to $0!
I heard of some mining companies offering FIFO workers to halve their hours and halve their income. This reduces their marginal tax rate and also gives them more time for family or holidays. Other people do something as simple as working one less day per week.
Of course it's still wise to consider legal strategies to minimise tax but I think it's a good general principle to want to increase your income and therefore your tax.
Also I am a little surprised that no one has mentioned negative gearing yet. But as far as I know negative gearing is basically a gamble that the property value will increase more than the maintenance expenses plus interest paid. Many times this gamble will pay off but obviously it has risks. And then when you sell the asset for profit you still pay capital gains tax.
Also find out if you can salary sacrifice for super contributions. If so then it is actually possible to increase the amount going into super (and decrease your tax) whilst still receiving the exact same amount of take home pay.
I don't think "reducing income" is the point of this thread as a tax minimisation method. Ideally you'd want to figure out how to pay less tax on the same income.
Set up a family trust and allocate income to family members on lower marginal tax rates. (Not a strategy for PAYG salary earners.)
At a simpler level, married couples can put investments in the name of the spouse with the lower taxable income.
For example, assume a husband has $80k cash earning $2k in bank interest per year. If his marginal tax rate is 40 cents/dollar he will then pay $800 tax on the $2k. But if the $80k was put in his wife's account then she would have paid $0 tax on the $2k of income if her total earnings for the year are under the tax free threshold (currently $18k).
At least, this strategy is what I read in Noel Whittaker's book.
You may also transfer assets/income to your child's name but I believe there are a lot of rules around this and I believe you shouldn't do this unless it will all completely belong to the child once they are an adult.
$80k cash earning $2k in bank interest per year
Step 1 - look for a better bank. You should be getting 4% not 2.5%, eg Ubank, ING.
(Unless you meant $3.2k interest earnt, but you kept saying $2k…but yes, splitting to lower income earner is good strategy)It was an example. I just fabricated the numbers to demonstrate a scenario…
Why wouldnt this work for PAYG contractors?
As this would fall into the personal services income area.
You could set yourself up as a contractor through a family trust and distribute any profits to each family member.
However the tax office will deem it all as money earned from your own skills and services. They will then ensure that all income from that business is treated as your own & will not allow it to be split to other family members. (In other words they view it as a scheme that you are putting in place to lower your tax payments…. the tax office do not like schemes!)
The "be apple" comment has merit; if you can follow this recipe to get to keep the legal maxamin of your own money (tax is legal theft after all)
Say your a husband a wife couple, well once you would income split but thies days are gone but you can do the same if you claim the rental/interlectual property of your business to a related party. You see the top tax is paid by the top earner, so by reducing/splitting income over 2 or more you lower the amount each has to pay. You just have to find a way to 'pay' the other person an expense you can split/deduct… Then protect your money, trusts are the legal way to do this. If things go tits up you cant be giving anything you have made away after all. Next invest the money or place assest beyond easy theft. GOLD/SILVER can be buried (they came out of the ground after all), art work's value is in the eye of the beholder and can be 'masked' with your own homebrew creation. Lastly BITCOIN is a way of making some of your money internationally available in a form that passes all border control.
Lastly, if you want to be crooked then get a fake passport, create a bank account is some tax/lawyer rich 3rd world island and keep some money offshore too. But this is not legal and remember anything obviously illegal leaves you open to chargers at home and confiscation abroad. But linked to an online account and creditcard its hard to track. You spend on the CC locally and just use your money to pay off the CC online every month. Income you wish to hide from overseas or online is best kept from prying eyes.
Oh tell no one, you know, first rule of fight club and all that!
My mum used to donate clothes from her shop to orphanages, which apparently reduced the tax by heaps. :)
As a retailer, she always had excess stock, so that was part of the reason. She started buying stuff specially for that in the end, I really think she got into it.
I am not sure how much this translate to Australia, but donation?