Written by:
Joel Simmonds
Head of Advice
For high-income earners in Australia, managing taxes can feel like an uphill battle. You’ve worked hard to reach your level of success, but the reality of Australia’s progressive tax system means a significant chunk of your income goes straight to the government. The higher your income, the higher the tax burden, leaving many high earners wondering, “Is there any way to keep more of what I earn?”
The good news is, there are legal and effective strategies to reduce taxable income that offer other advantages. From salary sacrificing to debt recycling, this guide explores proven methods that can help you minimise taxes and build lasting wealth.
High-income earners face unique challenges when it comes to managing their finances. While your income may place you in the top tax brackets, lifestyle pressures and poor tax planning can erode the benefits of earning well.
Without a proactive strategy, many high earners miss opportunities to legally reduce their taxable income and grow their wealth.
Take James, for example. James earns $220,000 a year as a senior project manager. On the surface, he’s doing incredibly well — living in a great home, taking family holidays, and driving the car he always dreamed of. But at tax time, James finds himself frustrated. His taxable income places him in one of the highest brackets, and he feels like half of his hard work disappears before it even hits his bank account.
James isn’t alone. Many high-income earners find themselves in a similar position, unaware of the strategies available to them. With a little knowledge and planning, James could reduce his taxable income, save thousands of dollars, and redirect those savings into building long-term financial security.
For many high-income earners, tax planning only becomes a priority as the end of the financial year (EOFY) approaches. It’s easy to put off thinking about tax strategies until deadlines are looming, but by then, you’ve missed months of opportunities to save.
The truth is, effective tax-saving requires a proactive, year-round approach. By integrating strategies like salary sacrificing, super contributions, and investment planning into your financial routine early, you can spread the benefits throughout the year — and avoid the stress of scrambling at the last minute.
Think of tax planning as a marathon, not a sprint. By reviewing your finances regularly and working with a financial adviser, you can:
Australia’s progressive tax system means the more you earn, the higher your tax rate. For individuals like James, earning over $180,000 annually puts him in the 45% marginal tax bracket, not including the Medicare Levy or additional surcharges. That’s nearly half of every dollar above that threshold going to taxes.
For many high-income earners, this often leads to a sense of financial frustration: “Why bother earning more if so much goes to tax?” But the truth is, with the right strategies, there are ways to legally reduce your taxable income and keep more of your money working for you.
Reducing your taxable income doesn’t have to feel like an impossible task. With the right strategies, you can minimise your tax burden while setting yourself up for financial success. These nine proven methods are tailored to help high-income earners like you take control of your finances, reduce tax liabilities, and make the most of every dollar you earn.
Salary sacrificing into superannuation is one of the most effective ways to reduce taxable income. By contributing a portion of your pre-tax salary into your super fund, you lower your assessable income and benefit from the concessional tax rate of 15% applied within the fund.
How It Works:
Additional Benefits:
Tip: Always check your total concessional contributions (employer + salary sacrifice) to ensure you don’t exceed the $27,500 cap.
Work-related deductions can significantly lower taxable income, yet many high-income earners overlook these opportunities. Eligible expenses must directly relate to earning your income and can include:
What Can Be Claimed:
How to Maximise This Strategy:
Keep detailed records and receipts for all eligible expenses. Using apps or software to track your spending makes it easier to claim deductions and ensures compliance with ATO requirements.
Owning an investment property opens up several tax-saving opportunities, particularly for high-income earners.
Depreciation:
Negative Gearing:
If the costs of owning the property (loan interest, maintenance, depreciation) exceed the rental income, the resulting loss can be deducted from your taxable income.
Example:
If your rental property incurs $25,000 in expenses but generates $15,000 in income, the $10,000 loss can be deducted from your taxable income, reducing your overall tax liability.
Tip: Engage a qualified quantity surveyor to prepare a depreciation schedule, ensuring you make the most of your claims.
Beyond salary sacrificing, personal concessional contributions are another tax-effective way to reduce taxable income. These contributions are also taxed at just 15%, providing significant savings compared to your marginal tax rate.
Carry-Forward Rule:
If your super balance is under $500,000, you can carry forward unused concessional caps from the past five years. For example, if you contributed $20,000 last year (leaving $7,500 unused), you can make up the difference this year, allowing you to contribute $35,000 and claim the entire amount as a deduction.
Tip: Regularly review your super balance and contribution caps to maximise this opportunity.
Donating to charity not only supports meaningful causes but also helps reduce your taxable income. Any donations of $2 or more to registered charities in Australia are tax-deductible.
What to Keep in Mind:
What to Keep in Mind:
If you earn $200,000 and donate $5,000 to a DGR-registered charity, your taxable income decreases to $195,000. At a marginal tax rate of 45%, this equates to a tax saving of $2,250.
Tip: Keep receipts for all donations and consider regular giving to spread the tax benefit throughout the year.
Investing wisely can help you reduce taxable income while building wealth. High-income earners often benefit from strategies that minimise tax on investment income and capital gains.
Examples of Tax-Efficient Investments:
Tip: Work with a financial adviser to align your investment strategy with your tax goals and risk tolerance.
For high-income earners with families, strategies like income splitting and family trusts can significantly reduce the household’s overall tax burden.
Income Splitting:
This strategy involves allocating income-producing assets (e.g., rental properties or shares) to a lower-income spouse or family member. Income generated from these assets is taxed at the recipient’s lower marginal rate.
Family Trusts:
A family trust allows you to distribute income or investment returns to beneficiaries in lower tax brackets, reducing the overall household tax liability.
Example:
If a family trust generates $50,000 in income, you could allocate $20,000 to a non-working spouse and $15,000 each to two children (who are taxed at lower rates). This avoids a significant portion of tax that would otherwise be incurred if all income was attributed to the high-income earner.
Caution: Trusts must be set up and managed carefully to comply with ATO regulations. Seek professional advice before implementing this strategy.
The Medicare Levy Surcharge (MLS) applies to individuals earning over $90,000 (or $180,000 for families) who don’t have private health insurance. While taking out private health insurance avoids this surcharge, it’s important to choose the right level of cover.
Why Basic “Junk” Cover Isn’t Enough:
Some policies meet the technical requirements to avoid the MLS but offer little actual coverage. These so-called “junk policies” leave you exposed to high out-of-pocket expenses for medical care.
How to Choose the Right Cover:
By selecting a plan tailored to your health needs, you avoid the MLS and gain valuable protection against unexpected medical expenses.
Debt recycling is a powerful strategy for high-income earners to reduce taxable income while building long-term wealth. It involves converting non-deductible home loan debt into tax-deductible investment debt.
How It Works:
Example:
If you pay off $50,000 of your home loan and re-borrow that amount to invest in shares, the interest on the $50,000 becomes tax-deductible. At the same time, the dividends or rental income from the investment further offset your tax liability.
Tip: Debt recycling involves market risks, so ensure your investments align with your risk tolerance. Learn more about this strategy in our comprehensive debt recycling guide.
Paying less tax as a high-income earner in Australia requires a proactive, strategic approach. By leveraging strategies like salary sacrificing, super contributions, and debt recycling, you can reduce taxable income while building wealth and securing your financial future.
If you’re ready to optimise your tax position, book a no-cost consultation today. Let’s craft a tailored plan that works for your unique financial goals.
In this video, Financial Adviser Erin Truscott shares how we help clients create tailored investment strategies that align with their unique financial goals.
If you’re a high-income earner in Australia, navigating the world of taxes can feel overwhelming. You might have questions about which strategies are right for you, how to avoid common pitfalls, or whether certain approaches apply to your situation. To help, we’ve compiled answers to some of the most commonly asked questions we get from clients looking to reduce their taxable income while building wealth.
The earlier, the better. Tax-saving strategies work best when they’re implemented as part of your year-round financial planning, rather than waiting until the end of the financial year. For example, spreading out concessional super contributions throughout the year reduces cash flow pressure and ensures you don’t miss key deadlines.
The best strategies depend on your personal financial situation, goals, and risk tolerance. For instance:
Yes, debt recycling involves borrowing money to invest, which comes with risks such as market fluctuations, potential investment losses, and higher interest payments. If your investments don’t perform well, you could end up losing money while still servicing the loan. It’s essential to ensure your risk tolerance and financial stability align with this strategy.
Yes, even if you’ve spent a lot this year, there are still ways to save on tax. For example:
This depends on your financial goals. Paying off your mortgage improves financial security but doesn’t reduce taxable income. Investing, particularly through strategies like debt recycling or negatively geared property, provides tax benefits and wealth-building potential. A balanced approach is often best.
If you exceed the $27,500 concessional cap, the excess amount will be taxed at your marginal tax rate, minus a 15% offset for the contributions already taxed in your super fund. You also have the option to withdraw the excess amount, which avoids additional penalties. It’s important to monitor contributions carefully to avoid these issues.
A family trust is ideal for individuals or families with multiple income-earning members in lower tax brackets. It’s also suitable for managing income from investments or businesses. However, trusts come with setup costs, ongoing administration, and legal responsibilities. A professional assessment can determine if the benefits outweigh the complexities.
Yes, you can reduce the tax impact of bonuses by:
Tip: Consider spreading large payments across financial years where possible to minimise the immediate tax hit.
While junk health insurance avoids the MLS, it offers little to no real coverage for medical expenses. This could lead to significant out-of-pocket costs if you need treatment. Instead, look for a policy that balances affordability with genuine benefits tailored to your health needs.
Yes! Tax-efficient investments like Australian shares with franking credits, dividend reinvestment plans (DRPs), and ETFs help offset your tax liability while allowing your wealth to grow. Holding investments long-term also reduces capital gains tax, providing additional tax efficiency.
Read More
What’s keeping high-income earners from turning their salaries into lifelong wealth? And more importantly, how can you break free? Let’s start by understanding the challenges and then dive into practical steps to transform your financial reality.
What’s keeping high-income earners from turning their salaries into lifelong wealth? And more importantly, how can you break free? Let’s start by understanding the challenges and then dive into practical steps to transform your financial reality.
Thinking about using your superannuation to invest in property? With an SMSF (Self-Managed Super Fund), it’s possible to purchase investment properties directly. However, there are specific rules and considerations, as well as unique benefits, that come with this approach.
Using your super to buy a house is a topic that sparks a lot of interest, especially for those thinking about homeownership or diversifying their investment portfolio. But can you really buy a house with your super? The answer is yes, but with some important conditions and rules.
They say there are only two certainties in life: death and taxes. While we can’t escape either, understanding estate taxes in Australia can help you navigate the financial landscape that follows when someone passes away.
Retiring early is a dream for many, offering the chance to spend more time doing what you love without being tied to work. But making that dream a reality requires careful planning. From saving and investing to managing risks, early retirement brings a unique set of challenges and rewards.
This is a publication of Direct Wealth Pty Ltd, a wholly owned subsidiary of Direct Wealth Group Pty Ltd.
General Advice Warning – The information contained in this article is of a general nature and does not take into account your particular objectives, financial situation or needs. You should therefore consider the appropriateness of the advice for your situation before acting on it. You should obtain and consider the relevant Product Disclosure Statement (PDS) and seek the assistance of an authorised financial adviser before making any decisions regarding any products or strategies mentioned in this publication.
Disclaimer – While all care has been taken in the preparation of this blog, to the maximum extent permitted by law, no warranty is given in respect of the information provided and accordingly, neither Direct Wealth nor its related bodies corporate, employees or agents shall be liable for any loss suffered arising from reliance on this information.
