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Tuesday, 11 July 2017

Pay less tax in Australia - the legal way

Happy financial new year everyone! It's time to do your tax return - which for most of us means getting some money back in our pockets.

The average person pays almost $17,000 a year in tax - how great would it be to pay less? Here's some simple, legal tricks to pay less tax.

A quick google search tells me that Australians pay 125 different taxes, and while some of them are wonderful things that keep our healthcare and education systems running, we are also paying some ridiculous things like the "Wine Equalisation Tax" and the highly contentious Carbon Tax.

For most of us 20% of what we earn disappears into paying taxes. I don't mind the taxes that let me get free healthcare, or the ones that make sure I have law enforcement and children can read. However when I leave work on Monday and realise I've worked that whole day and I don't see a cent of it, I get a little grouchy.

Here are the absolute basics of reducing your tax bill. Some of these you can implement for the year just gone, some you'll need to keep records to claim next year.

Pay less tax by Doing your laundry and wearing good pants

Do you wear clothes to work? Good start. Do those clothes have your employers logo on them? You can claim for washing that. You can also claim for washing 'Occupation specific clothing' like nurses scrubs, or checked chef pants, and you can claim for buying protective clothing like safety vests, hard hats, non-slip shoes and sun protection.

The best part is, if you're claiming for laundry then you don't need receipts if you claim less than $150 and if your total work-wear claim is less than $300.

You will need to front receipts for any work-specific clothes you've bought.

Pay less tax by driving a car

Unfortunately you can't claim for driving to work in the morning, but you can claim a tax deduction for driving for work. If you're employer has two different work sites and you travel between them you can claim for that trip. If you drive somewhere for work, say to the bank, or to a supplier, then you can claim that trip. If you drive to an "alternative workplace" you can claim that expense, so long as it's not a regular trip, because then it becomes a regular workplace. The definitions around this are a little hazy, but if you only need to head out to the alternative place a couple of times a year you should be okay.

If you drive less than 5,000 kilometres in a year, then the easiest claim method is Cents per Kilometre. You'll need to record how many kilometres you drove for business (either with a work diary, or a logbook) and you can claim 66cents per kilometre, up to 5,000 kilometres. That's $3,300 worth of deductions, just for keeping a diary.

If you drive more than 5,000 kilometres (or want to do the paperwork) you can claim a percentage of use. You'll need to track to odometer readings for all business and personal trips, plus keep receipts for every expense (petrol, maintenance, etc.). You can then claim a percentage of your car costs and depreciation. This method can be more lucrative, but also requires a lot more effort on your part.

 Pay less tax by getting smarter

Studying? Taking a short course? You can claim for schooling expenses like notepads, textbooks, accommodation if you travelled for the course, course fees and even your home office and internet costs - as long as your course is related to your current employment. If you work in a bank and are studying to be a vet, you won't be able to make a claim, but an accountant taking an advanced tax course can claim the expenses.

Unfortunately you can't claim HECS / HELP fees, or lunch - unless you had to spend the night away from home.

Pay less tax by giving to charity

Okay, here's a big one. We pay taxes to keep our country running. Our taxes keep hospitals open, keep police on the streets, teachers in classrooms and libraries open. Our taxes also pay for things we might disagree with like international troop deployment, building jet fighters and politicians pensions.

If you think there is a cause that your tax money isn't doing enough to support, make a donation and you can claim it as a tax deduction (assuming that charity has the right tax status - they'll tell you.)

Of course you'll need a receipt, then rather than your taxes going to a politicians bank account, you can make a donation to the Hutt St. Centre to support homeless South Australians and you can pay less tax at the same time.

Also, you can claim $10 of unexplained donations. This covers the coins you drop in charity jars.

Pay less tax by getting married!

You don't need a white dress and a wedding ring for this one, a De Facto marriage will do. If a single person earns more than $90,000 they are required to pay an extra 1% towards the Medicare Levy Surcharge. However as a family you can earn up to $180,000 before this surcharge comes into play.

I'm definitely not saying shack up with a stranger to avoid this tax - there are a lot of strings attached to being declared a De Facto couple. But if you're sharing a house and a bed with your partner for more than six months then a good lawyer will be able to argue you had a De Facto relationship and take half your stuff in a messy breakup.

That 1% surcharge will cost you at least $900 on your tax bill, so maybe it's time to drop to a knee and ask your dearly beloved to tax marry you.

Pay less tax with your phone and internet

Are you on call for work? Do you answer work emails out of hours and have long boring chats with your boss well after you leave work? Congratulations, you can claim that back on tax.

Simply work out what percentage of your phone and internet usage is work related, and how much is personal, then times your bill by that amount. If 50% of your phone usage is for work, and you pay $60 a month, then you can claim a $360 deduction at the end of the year. ($60 p/month times 50% equals $30. Over 12 months that equals $360)

Pay less tax by getting someone else to do your tax

Paying a tax agent is a double whammy of deductions. A good tax agent will get you more in deductions than you paid to see them in the first place, and you can claim their fee as a deduction next year!

A tax agent is also a great idea because they stay on top of all the shifting rules of our tax system. Each year the rules about what can be claimed, how much you can claim and what receipts you need to hold on to change. Paying a tax agent to be aware of these things is a great idea.

Is it worth the extra drama?

Absolutely yes! Studies show that Australians are missing out on $426 worth of unclaimed tax deductions each year. If you are earning $50,000 and claim $1,000 in deductions, that puts $325 back in your pocket. That's a 32% return and better than any investment I know of.

You've done all the hard work to earn this money, with a few tiny extra steps you can make sure you keep it.

Keep in mind, I'm not a qualified tax agent. I've got years of experience with my own tax returns and I have Google. Don't take this as gospel - all the things I've mentioned can be claimed, but do your own research and make sure it applies to your situation. No one wants the ATO knocking on their door because they claimed too much for laundry.


  1. I do all of the above and still think I pay too much tax! This is the first year I actually paid attention to how much tax I was paying and oh my gosh. Now if that tax was going towards worthy thing, I'd be less cut up about it. But at this current point....

    Still, good tips!

    1. I pay heaps of tax as well :( But my investment property brings in a lot of deductions. I'm hoping to reduce the tax I pay next year, so I'm going to do some research about what else is out there. I thought before I wrote about any deep dive techniques I should start with the absolute basics.

      All these ideas take a few minutes of your time and return hundreds of dollars. We should all be doing these things!

  2. This article is very interesting and helpful. Thank you for sharing!

  3. Good suggestions. For those interested in building long term wealth through shares / property, focusing on structuring is very important. A good accountant is able to save you significantly more than the fees that they charge.

  4. Thanks for the tax tips. Structuring your investments correctly is a topic not many PF bloggers discuss. Should the investments be in your name or potentially in your partners name, in your kids name or even in a discretionary trust. The long term tax savings are potentially huge depending upon a range of factors including marginal rates of tax, investment types,investment horizons etc.

    1. Hi Mawer,

      Sorry for the very late reply! If you have any good posts on tax setup feel free to link them - although this is an Australian blog, and I think you're from the States?

  5. Thank you for sharing! This article is very informative and helpful. Good work!

  6. Ah,tax season. The one time every citizen of the world release their inner Sherlock and their powers of deduction.
    Getting married might be a step too far though

  7. one another big one is the "work from home" deductions! you can claim electricity, heating, etc...
    handy when more and more of us are working with flexibility !

    1. Reading his comment while working from home... definitely remembering this when I lodge my taxes in a few weeks time!

  8. I love how getting married is listed as if that's an easy choice for everyone.

    1. Getting married definitely isnt, but I suspect there are a lot of people living in a de facto relationship that don't realise that is enough for tax purposes. I believe (without checking) that de facto can be applied to Same-Sex relationships as well.


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