How Do High-Income Earners Reduce Taxes in Australia

People get upset when rich people don’t pay taxes, but when you become successful (as a high-income earner), you also end up with a bigger tax bill. It can be frustrating, especially within the Australian progressive tax system. 

You’ve probably even heard people turn down higher paychecks and say, “What’s the point of earning more? The tax just gets higher!” Such types of statements are wrong, as there are ways to legally reduce your tax and keep more of what you’ve worked so hard for. From making extra super contributions to salary sacrificing, there are smart ways to reduce your tax bill. We have shared the right strategies that you can use and make the tax system work for you, legally. Keep reading to learn how to save tax in Australia and put more money back into your pocket.

When it comes to tips for reducing taxes, we don’t mean “not paying taxes”, instead, it’s about maximising what you keep after taxes (meaning you get a higher tax return). In Australia, tax planning is your legal right. The Australian Taxation Office (ATO) lets you manage your money to pay less tax, as long as you follow the rules. By using the under-given strategies, you get the maximum benefits to grow your business or investments.

Before going into those strategies, see who falls into the high-income earner category. People with a yearly income salary of $200,000 or more, fall into the high-income earner category. (In 2024, someone who earned more than $253,066 was in the top 1%). Also, with the new stage three tax cuts coming in 2025, high-income earners will get taxed more. These changes mean anyone earning over $190,000 will pay a 45% tax on the amount above $190,000. 

We get it, no one wants to pay more tax than necessary (especially high-income earners who will face even higher rates in 2025). So to avoid losses and too much tax, follow these strategies to reduce your taxable income legally:

High earners often face higher taxes, sometimes up to more than 65% of what they make. This includes taxes on income, any profits from selling assets, and many other factors. Here’s how you can save on each factor that affects tax:

1. Use Salary Sacrifice to Save on Insurance

You can save money by sacrificing your salary. Salary sacrifice means you give up part of your salary in exchange for benefits like insurance (This will be a formal arrangement between you and your boss). 

It can be for life insurance, disability insurance, or income protection insurance. By paying for these insurances (or any type of benefits) before tax is applied, you reduce your taxable income. So, you end up paying less tax overall. 

2. Invest in Negatively Geared Assets

Negative gearing means you invest in something, like a property, where the costs (like loan interest and maintenance) are higher than the money you make from it. So, you end up losing money on the investment. How’s that good? The loss you make from this investment can be used to lower your overall taxable income. This means you’ll pay less in taxes. Here’s a Simple Example:

What’s the Benefit? By smartly using negative gearing and depreciation, you can reduce the effective cost of owning the property and potentially make a profit. Over time, property values often increase, so you could see significant capital gains when you sell it.

3. Donate to Charity 

Donating to eligible charities in Australia can help lower your taxes. If you give more than $2 to a charity that’s a Deductible Gift Recipient (DGR), you can subtract that amount from your taxable income, which means you pay less tax.

When you donate, keep all your receipts. These receipts prove your donation and are necessary for claiming the tax deduction.

Why Give? Supporting charities is a great way to get a tax break. Just make sure the charity is a DGR, and keep your donation receipts for tax purposes.

4. Maximize Allowable Deductions and Tax Offsets 

Allowable deductions are expenses you can claim to reduce your taxable income. They include things like work-related expenses, investment-related expenses, and other deductions allowed by Australian tax law. Check deductions you can claim and business tax deductions to get a list of items you can claim.

Aside from tax deductions, ATO allows tax offsets. Tax offsets (or rebates) reduce your tax bill based on your eligibility. They won’t give you a refund if your tax bill drops to zero, but they can still lower how much you owe. Make sure to check which offsets you qualify for. Check the list to receive tax offsets. 

5. Manage Capital Gains Tax Discount

In Australia, if you hang onto an asset for more than 12 months, you can get a 50% discount on the tax you pay when you sell it. This discount is available for various assets like real estate or stocks. 

Why is it helpful to manage it? Try to sell these assets in a year when your income is lower. For example, if you’re taking a break from work or earning less, selling your investments then can reduce the amount of tax you owe.

Let’s say you own a property that’s increased in value. If you sell it during a low-income year, you’ll pay less tax on your profit compared to selling it when your income is high. Time your asset sales and take advantage of the CGT discount to keep more of your hard-earned money!

6. Cut Taxes with Extra Super Contributions

Superannuation is the best tax loophole in Australia. It’s a great (Legal) tax dodging strategy and investing hack that most people don’t know about. Superannuation, or “super,” is a retirement savings plan in Australia where you set aside money from your earnings to save for retirement. This money grows over time and provides income when you retire. 

The system is designed to help Australians save for their later years, and it comes with some significant tax advantages. Here’s how extra contributions help:

Here’s an investment scenario to compare the tax benefits of investing $2,000 through superannuation versus outside superannuation:

Investment Type	Tax Rate	Tax Paid	Amount Left to Invest
Outside super	Up to 45%	$650	$1,350
Inside super	15%	$300	$1,700
Investing through super means you have $350 more to invest compared to outside super.

Limitations! Superannuation money can only be accessed when you retire, so balance your investments with your current needs and future goals.

7. Be Careful with Employee Share Schemes

Some businesses/ companies offer shares as a reward to their workers. If you get shares, remember that you may need to pay tax when they become fully yours (this is called “vesting”). Even if you don’t sell the shares, the tax office counts them as income, so you might owe taxes. To avoid surprises, it’s a good idea to talk to a tax professional so you know how much you’ll owe when your shares vest.

8. Avoid the Medicare Levy Surcharge

All Australians earning over $27,000 a year have to pay Medicare Levy. This is a 2% tax on your taxable income that helps fund Medicare (Australian public healthcare system). 

However high-income earners (singles earning over $90,000 or couples with a joint income above $180,000) need to pay an extra tax called the Medicare Levy Surcharge. This additional charge ranges from 1% to 1.5% of your taxable income. By getting Private Health Insurance, you can avoid this extra surcharge. It’s a win-win because you save money on taxes and get better healthcare options.

Running a business is challenging enough but being in a higher tax bracket while being a business owner is another headache. The good news is there are plenty of strategies you can use to reduce your taxes. You can use the above-given methods but we recommend reading the under-given states if you’re a small business owner or running a large company:

1. Pick the Right Business Structure

Selecting the right business structure can have a huge impact on your taxes. Each structure (sole trader, partnership, company, or trust) comes with different tax implications:

2. Franking Credits (Get tax benefits from shares you own)

If you own shares in a company, franking credits can reduce your tax bill. What does that mean? When a company makes a profit, it pays taxes on that money. Those tax payments turn into “franking credits”, which get passed on to you, the shareholder.

These franking credits can lower the amount of tax you owe on your dividends (the money you earn from owning shares).

When your franking credits are higher than your tax bill, you get a refund! So take advantage of this if you’re investing in shares.

3. Use Income Splitting

Income splitting is a great way to lower taxes by sharing income with family members in lower tax brackets. For example, if you run a family business, you can hire your spouse or adult kids and pay them a salary. This way, you’re spreading out the income, which can help reduce the total tax you owe. Also, if you’re using a trust, you can distribute income to family members with lower incomes, reducing the overall tax burden.

4. Get deductions by repairing properties

People who own an investment property can get any necessary repairs done before June 30 to claim a tax deduction. Just remember that only genuine repairs are deductible immediately. Improvements, on the other hand, must be depreciated over time. The Australian Tax Office (ATO) is strict about differentiating between repairs and improvements, so make sure you’re clear on the rules. 

Additional Tips for Every Income Bracket

Here’s something that every new tax-owing person should keep in mind:

1. Stick to Deadlines: Wait until after July to file your tax return. This way, your bank details and other info will be automatically filled in, reducing errors.
2. Track Your Money: Regularly check where your money is coming from and going. 
3. Keep Records: Organize all your financial documents like receipts and statements. This makes it easier to claim deductions and handle any tax office questions.
4. Invest Wisely: Look into investments that offer tax deductions, like certain shares and funds. Using borrowed money to invest can help you get more benefits, but make sure you’re ready for the long-term commitment.
5. Tax Considerations for Temporary Visa Holders: To save tax on a 482 visa in Australia, make sure to claim work-related expenses like uniforms and tools, and use any receipts you have. You don’t need to pay the Medicare Levy if you’re not eligible. Also, remember to declare only your Australian income if you’re a temporary resident.