How to Reduce Your Taxable Income in Australia: 10 Legitimate Strategies

Salary sacrifice allows you to redirect pre-tax salary into your superannuation fund, reducing your assessable income by the amount sacrificed. The sacrificed amount is taxed at 15% inside super (plus any Division 293 liability for high earners) rather than at your marginal income tax rate of up to 47%.

For a person on $120,000 (marginal rate 37% plus 2% Medicare = 39%), salary sacrificing $10,000 saves approximately $2,400 in income tax compared to receiving the income in cash (39% vs 15% = 24% saving on $10,000). The saving grows with your marginal rate - at 47%, the saving on $10,000 is approximately $3,200.

The concessional contribution cap for 2024–25 is $27,500 per year (including employer SG contributions). Contributions above this cap are taxed at your marginal rate, making over-contributions counterproductive. Track your employer SG contributions against the cap before determining your salary sacrifice amount.

If you are self-employed, a contractor, or your employer does not offer salary sacrifice, you can make personal super contributions and claim them as a tax deduction. The result is the same as salary sacrifice - contributions are taxed at 15% inside super rather than at your marginal rate.

To claim the deduction, you must lodge a valid Notice of Intent to Claim a Deduction with your super fund before you lodge your tax return (or before requesting a rollover or starting a pension from that fund). The notice must be acknowledged by the fund. Missing this step means the deduction is lost - it cannot be backdated.

The same $27,500 concessional cap applies. Personal deductible contributions plus employer SG contributions cannot exceed $27,500 without excess concessional contribution consequences.

If your total super balance was under $500,000 at the prior 30 June, you can access unused concessional contribution cap space from the prior 5 years. This allows a single large concessional contribution - up to $137,500 in 2024–25 - to catch up years of lower contributions.

This strategy is most powerful in years when you have a large one-off income event (sale of a business or property, bonus, partnership distribution) that will push you into a higher tax bracket. Making a catch-up concessional contribution in that year reduces the income that would otherwise be taxed at the highest marginal rate.

If you hold an asset with an unrealised capital gain and are considering selling, timing the sale can significantly affect the tax outcome. Key timing considerations: (1) Hold assets for more than 12 months to qualify for the 50% CGT discount (for individuals, trusts, and SMSFs in accumulation phase). (2) Defer the sale to the next financial year if your income in the current year is unusually high - a CGT event in a high-income year is taxed at a higher effective rate than in a lower-income year. (3) Crystallise capital losses before 30 June to offset existing capital gains in the same year.

CGT timing does not reduce the capital gain - it simply determines when and at what rate the tax is paid. In some cases, deferring a gain is more valuable than realising it earlier at a lower rate, depending on the time value of money and your expected future income trajectory.

Individuals and small businesses can prepay up to 12 months of deductible expenses before 30 June and claim the full deduction in the current financial year. This accelerates the deduction into the current year - useful if your income (and marginal rate) is higher this year than next.

Expenses that can be prepaid: income protection insurance premiums, professional indemnity insurance, professional membership fees and subscriptions, investment property interest (if the loan allows prepayment), and accounting or financial advice fees.

The prepayment rule applies where the service period does not extend beyond 12 months after the payment date and does not extend beyond the end of the next income year. A payment made on 29 June 2025 for a subscription covering to 28 June 2026 qualifies. A payment for a period extending beyond 30 June 2026 would need to be apportioned.

Income protection insurance premiums are fully deductible in the year of payment - there is no dollar cap. For a policy costing $3,000 per year, a person on a 47% marginal rate saves approximately $1,410 in tax, making the after-tax cost of cover approximately $1,590.

Income protection cover outside super is deductible; income protection held inside super is not deductible personally (the super fund claims the deduction at the fund level instead). If you are comparing inside vs outside super IP, factor in the deductibility difference.

Combined with prepayment: paying next year's IP premium before 30 June this year doubles the deduction in the current tax year - a one-off boost followed by normal annual deductions going forward.

Donations of $2 or more to an ATO-approved Deductible Gift Recipient (DGR) are fully deductible in the year of payment. There is no cap on the deduction - a $50,000 donation to a DGR charity generates a $50,000 deduction.

Not all charities are DGRs - the charity must hold DGR status as listed on the ATO's ABN Lookup. Religious organisations, sports clubs, and many community groups are not DGRs. Verify DGR status before assuming a donation is deductible.

For large charitable donations, a Private Ancillary Fund (PAF) allows you to make a large upfront deductible contribution (in a high-income year) and distribute the funds to qualifying DGR charities over time. PAFs require a minimum initial contribution of $20,000 and ongoing administration, but they are powerful for philanthropic families wanting deductibility now and distribution flexibility later.

If your investment property expenses (interest, rates, insurance, depreciation, management fees, repairs) exceed your rental income, the net rental loss is negatively geared - deductible against your other assessable income in the same year.

Negative gearing reduces taxable income in the loss year, but the benefit depends on your marginal tax rate and the expectation that the property will generate a capital gain exceeding the tax benefit of the annual losses. It is not free money - each dollar of negative gearing tax benefit comes with a real cash outflow that is only partially offset by the tax saving.

Depreciation is a non-cash deduction available on the structure (at 2.5% per year for residential buildings) and on plant and equipment inside the property (using a quantity surveyor's depreciation schedule). Buildings purchased after 7 May 2017 do not allow plant and equipment deductions for second-hand items, but new properties and the structural shell deduction remain available.

Legitimate work-related deductions - uniform and protective clothing, tools and equipment, professional development, union fees, home office costs, and work-related travel - directly reduce assessable income. These deductions are often overlooked or under-claimed.

Key rules: the expense must be directly related to earning your assessable income (not private in nature), you must have actually incurred the expense (not reimbursed by your employer), and you must be able to substantiate the claim (receipts or records). For work-related expenses above $300 in total, you must keep receipts - estimates are not accepted.

The ATO's MyDeductions app can help record receipts and deductions throughout the year rather than scrambling before 30 June.

If your spouse earns under $37,000, you can contribute up to $3,000 to their super and claim an 18% tax offset (up to $540). The offset phases out for spouse income between $37,000 and $40,000. This is a small dollar benefit but straightforward to implement.

Beyond the tax offset, spouse contributions build the lower-income partner's super balance - reducing the long-term retirement savings gap for couples where one partner has lower super due to career breaks, part-time work, or lower income. Spousal super contributions do not count against the receiving spouse's non-concessional contribution cap unless they exceed $110,000 (the NCC cap for 2024–25).

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Action these before 30 June to reduce your 2024–25 taxable income:

• Check salary sacrifice level against the $27,500 concessional cap (including employer SG)
• If self-employed, make personal deductible super contributions and lodge a Notice of Intent with your fund before 30 June
• Check carry-forward concessional contribution availability if super balance was under $500,000 at prior 30 June
• Consider deferring the sale of assets with unrealised gains to the next financial year if current income is unusually high
• Crystallise any capital losses before 30 June to offset existing gains
• Prepay deductible expenses (IP insurance, professional fees, subscriptions) before 30 June if income is higher this year
• Pay next year's income protection premium before 30 June for an accelerated deduction
• Make DGR donations before 30 June - receipts needed for deductions above $2
• Contribute up to $3,000 to spouse's super if their income is under $40,000 - claim the 18% offset

A registered tax agent can identify deductions specific to your situation that this general list may not cover - particularly for self-employed, investors, or those with complex income.