A combination of inflation and high employment levels have produced a $30 billion surge in tax revenue since last May. The Government claims this will be corrected by the proposed Stage 3 tax cuts commencing July 1 2024.
Taxpayers in the top tax brackets can cut thousands of dollars from this year’s tax bill by bringing forward deductions and super contributions to benefit from the planned tax cut.
As of July 1 there will be just one tax bracket applied to taxable income between $45,001 and $200,000 which will be taxed at a 30 per cent. Currently earnings between $45,001 and $120,000 are taxed at 32.5c in the dollar, and income between $120,001 and $180,000 is taxed 37c in the dollar, with the highest marginal rate of 45 per cent incurred on taxable income above $180,000. All tax brackets also attract the Medicare levy of 2 percent.
This brings a tax planning opportunity, particularly for individuals earning between $180,000 and $200,000, because deductions claimed this year rather than next will reduce tax payable by an additional 15%. For those earning $120,000 to $180,000 that reduction will be 7%.
The largest potential tax saving applies to income in the highest marginal rate. For example, a deduction of $20,000 on taxable income of $200,000 in the 2024 financial year decreases tax payable by $9,000, whereas the same claim amounts to a $6,000 reduction in the 2025 financial year. The taxpayer gains $3,000 by claiming in the current year.
Similarly, any income that can be postponed to next year would benefit taxpayers in higher tax brackets. An example would be for Sole traders - those running a business and reporting their income on a cash basis could consider how quickly they’re invoicing and chasing up debtors. Money collected after June 30 will count towards next year’s taxable income, even if it relates to work done this year.
How can I reduce my taxable income this year?
Superannuation contributions (capped at $27,500). This with balances under $500,000 can take advantage of the 5 year rollover for unused concessional contribution caps.
Large repairs on investment properties
Expensive training programs here or overseas
Negative gearing (The strategy of offsetting interest on a loan used to buy an income-producing asset against earned income)
CGT - delay selling assets that attract Capital Gains Tax
Increase donations
Prepay expenses as an individual. Just remember that the expense must be more than $1000 and must only relate to a period of less than 13 months.
The above suggestions are general in nature. Please let me know if you would like tailored advice to meet your personal situation and requirements.
I found this quote when searching for something profound. It really does sum things up well!
“Next to being shot at and missed, nothing is really quite as satisfying as an income tax refund.”
- F. J. Raymond