How Tax Time Can SAVE You Money, Rather Than COST You Money
‘Saving money’ and ‘taxes’ are not exactly words you’d expect to hear in the same sentence. Many people regard tax as just another expense that has to be paid because that’s the way the system works. Like most Australians, you might worry that after you pay your taxes, it leaves little left over for putting towards your retirement, investing in a portfolio, or finding other ways to put some cash away for the future. You’ve got bills to pay, after all, and those bills are only getting more expensive every year.
But what if there was another way? What if you could save for retirement, invest in the future, AND save money on tax? Well, you’d have to be nuts not to want to find out more, right?!
After helping hundreds of thousands of Australians optimise their tax positions over the past few decades, we’ve discovered that most people are missing significant opportunities to reduce their taxable income legally and strategically. The progressive tax system actually works in your favour when you understand how to leverage it properly.
Here’s the reality: Every dollar you can legitimately reduce from your taxable income saves you between 16 cents and 45 cents in tax, depending on your income bracket. For someone earning $95,000, a $10,000 reduction in taxable income saves approximately $3,000 in tax. That’s money back in your pocket, into your super fund, or into your investment portfolio!
The key is understanding that reducing taxable income isn’t about earning less — it’s about strategically redirecting your income to tax-advantaged vehicles and claiming every legitimate deduction available. Ready to transform your tax strategy from reactive bill-paying to proactive wealth-building?
What Counts as Taxable Income in Australia?
If you’re wondering how to reduce your taxable income in Australia, you’ve first got to understand what counts as taxable income. Simply put, taxable income is all streams of money that make up the total income you earn. This can come from wages or a salary, bank interest, dividends, rentals, foreign income or trust accounts. These days, many of our clients also make money through the gig economy, which might mean freelance income, YouTube earnings, or even cash-in-hand jobs like your band getting paid to play at a local festival.
Not all income is created equal, though. Some types of earning are exempt from tax, and there are even some you’re not required to declare (we know, it’s getting confusing, but bear with us, and we’ll explain).
Understanding the three categories of income can unlock big tax savings:
Assessable Income(taxable):
- Employment income and salary
- Bank interest and investment dividends
- Rental property income
- Business income and capital gains
- Foreign income (for Australian tax residents)
Exempt Income (declared but not taxed):
- Some Government pensions including disability support or invalidity service pension
- Some Government allowances such as carer allowance and child care subsidy
- Certain overseas pay and allowances for the Australian Defence Force and Federal Police
- Australian Government education payments
- Some scholarships, bursaries, grants and awards
- Some lump sum insurance policy payouts
Non-assessable, Non-exempt Income (NANE) (not taxed and generally not included in assessable income, but often still reportable to the ATO):
- The tax-free component of an employment termination payment (ETP)
- Genuine redundancy payments and early retirement scheme payments shown as ‘Lump sum D’ amounts
- Super co-contributions
- Disaster recovery allowances and bushfire-related payments
Understanding these distinctions helps you maximise legitimate tax minimisation strategies while ensuring you’re still fully compliant with the ATO.
How the Australian Tax System Works in 2024-25
Australians pay income tax on a ‘progressive tax system’. That means the more money you earn, the more tax you pay. The current rates for Australian residents for taxation purposes for 2024-25 are:
| Taxable income | Tax on this income |
|---|---|
| 0 – $18,200 | Nil |
| $18,201 – $45,000 | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | $4,288 plus 30c for each $1 over $45,000 |
| $135,001 – $190,000 | $31,288 plus 37c for each $1 over $135,000 |
| $190,001 and over | $51,638 plus 45c for each $1 over $190,000 |
Why this matters for tax reduction: You don’t want to earn less, obviously. So why do the tax brackets matter to you? Well, every dollar you can move from a higher tax bracket to a lower one — or remove from taxation altogether — multiplies your savings. The way the Australian tax system is designed means that if you can lower your ‘taxable income’ by either claiming deductions, moving money into superannuation, or in other ways, means you save on tax. It’s that simple!
Still confused? Not to worry. We’ll break it down below.
The Power of Super Contributions: Your Tax-Reduction Goldmine
The government wants to help you retire. Yes, you heard that right. Your superannuation fund is your compulsory retirement fund where gains are made over the course of your working life, and it’s also one of the most powerful tax reduction tools available.
Generally, you can’t access your super fund until you reach your preservation age:
| Date of Birth | Preservation Age | Reaches Preservation Age |
|---|---|---|
| Before 1 July 1960 | 55 years old | before 1 July 2015 |
| 1 July 1960 to 30 June 1961 | 56 years old | 1 July 2016 to 30 June 2017 |
| 1 July 1961 to 30 June 1962 | 57 years old | 1 July 2018 to 30 June 2019 |
| 1 July 1962 to 30 June 1963 | 58 years old | 1 July 2020 to 30 June 2021 |
| 1 July 1963 to 30 June 1964 | 59 years old | 1 July 2022 to 30 June 2023 |
| 1 July 1964 and later | 60 years old | from and after 1 July 2024 |
Currently, your employer is required to pay 11.5% of your wage (due to increase to 12% from 1st July 2025) into your choice of super fund (the super guarantee). However, you can contribute additional amounts that provide significant tax benefits.
Concessional Contributions (Before-Tax):
- 2024-25 cap: $30,000 per year (increased from $27,500)
- Taxed at only 15% within super (versus your marginal tax rate)
- Includes employer contributions, salary sacrifice, and personal deductible contributions
Learn more about ATO super contribution caps here.
How This Saves You Money: Making concessional payments could result in big tax savings (especially if it brings you down into a lower tax bracket), while building your retirement savings.
Important: To claim the tax deduction for personal concessional contributions, you must submit a ‘Notice of Intent’ form to your super fund before claiming the deduction. Be sure to always receive acknowledgment before lodging your tax return.
Pro Tax Tip: You may be able to make salary sacrifice contributions straight from your wage or salary if you’re an employee. That way it’s all done automatically for you, and the tax savings happen immediately in your pay packet.
Normally, there’s a yearly limit on how much after-tax money you can put into your super (called non-concessional contributions). But if you want to contribute more, you might be able to use the “bring-forward” rule. This lets you use up to three years’ worth of limits in one go — meaning you can make a bigger lump sum contribution without paying extra tax, as long as you meet certain conditions (like your age and total super balance).
Non-Concessional Contributions (After-Tax):
- 2024-25 cap: $120,000 per year (increased from $110,000)
- No tax deduction, but earnings grow in the tax-advantaged super environment
- Can be strategically used for spouse contributions
Work-Related Tax Deductions to Lower Taxable Income
Beyond superannuation, work-related deductions represent the largest opportunity most Australians have to reduce their taxable income. Our experience shows that the average taxpayer misses hundreds of dollars every year in missed deduction opportunities. Some even miss thousands! Each year, tax rules change, which can make things more confusing when it comes to lodging your tax return and understanding how to reduce your taxable income in Australia.
Here are some of the most recent changes which can impact your tax return:
Updated 2024-25 Deduction Opportunities:
Work-from-Home Expenses:
- Fixed rate method: $0.70 per hour (increased from previous rates)
- Requires detailed records of hours worked from home
- Covers utilities, phone, internet, stationery, and computer expenses
Vehicle Expenses:
- Cents per kilometre method: 88 cents/km (increased from 85 cents)
- Maximum 5,000 business kilometres without logbook
- The cents-per-km method doesn’t require a logbook, but you must be able to show how you calculated the distance or have a diary record
- Logbook method is available for higher claims with detailed records
Self-Education Expenses:
- Course fees, textbooks, and study materials
- Computer equipment and software for study
- Travel to education institutions
- Note: The $250 threshold has been removed — all amounts are now deductible
Tools and Equipment:
- Items costing under $300 can be claimed immediately
- More expensive items depreciated over their useful life
- Protective clothing, uniforms, and safety equipment
- Up to $20,000 instant asset write-off for small businesses (not employees)
Investment-Related Deductions:
- Bank fees and brokerage costs
- Investment property expenses (interest, management fees, maintenance)
- Ongoing financial advice fees related to taxable investments
- Subscriptions to investment publications
Common Missed Deductions:
- Laundry expenses for work uniforms (up to $150
+annually without receipts) - Mobile phone work usage (often $200-400 yearly)
- Professional memberships and union fees
- Work-related income protection insurance premiums
- Tax agent fees from previous years
Documentation Requirements: Keep detailed records including receipts, diary entries for home office usage, and logbooks for vehicle claims. The ATO’s data matching capabilities now extend to over 350 sources — so, proper documentation protects you during audits.
Want to know more about deductions? We’ve put together great tax tip guides for individuals and small businesses in the 2024-25 tax year (as well as one on which deductions you can claim without receipts), so be sure to check those out!
Leverage Tax Offsets and Rebates
When it comes to how to reduce your taxable income in Australia, tax offsets are often overlooked (partly because they’re often applied automatically and can go unnoticed). Tax offsets directly reduce the tax you owe, dollar for dollar. Unlike deductions that reduce your taxable income, offsets reduce your actual tax liability, making them even more valuable.
Some of the tax offsets you might be entitled to include:
- Tax offset for superannuation contributions you make on behalf of your spouse
- Zone tax offset when you live in a remote or isolated area of Australia
- Overseas forces tax offset when you serve overseas as a member of the Australian Defence Force or a United Nations armed force
- Invalid or invalid carer tax offset for the maintenance of an invalid or an invalid carer who is 16 years old or older
- Landcare and water facility tax offset brought forward from an earlier year
- Early-stage venture capital limited partnership tax offset
- Early-stage investor tax offset
- Foreign income tax offset for foreign income tax you pay overseas
- Tax offset for tax paid by the trustee of a special disability trust if you’re the principal beneficiary
- Tax offset for exploration credits.
Professional Insight: You may need to include an extra section in your tax return for tax offsets, as not doing so can cause you big trouble with the ATO. That’s why it’s always best to let ITP handle your tax return for you. We’ll not only make sure you get all possible offsets and deductions, but also ensure your tax return for the ATO contains all the info the ATO requires.
Professional Help = Maximum Tax Efficiency
Although this blog outlines clearly how to reduce your taxable income in Australia, a professional who can look into your circumstances and give advice is always the best option. We’ll crunch the numbers for you and tell you exactly what you need to do and how much you should contribute.
ITP Accounting Professionals help over 200,000 Australians save money on their tax bill every year. There’s not a lot we don’t know about tax. We’ll be able to help you out, not only saving your tax dollars, but turning them into savings. Phone 1800 367 487 or find your nearest ITP office here, and let us get started on saving you tax today.
What Our Clients Experience:
- Comprehensive review of all income sources and deduction opportunities
- Strategic superannuation contribution planning
- Ongoing tax advice throughout the year (keep an eye on news from the blog here)
- Professional audit protection and ATO correspondence handling
- Integration with broader financial planning objectives
The tax year doesn’t wait, and neither should your tax planning. Every month you delay strategic tax planning is money left on the table. Don’t let another tax year pass without maximising your legitimate tax minimisation opportunities. Your future self will thank you.