It's that time of year - tax season. When we hear "Is that all I'm getting back?" and "How do I get a bigger refund/ pay less tax?" While I'm an amazing tax accountant even I have limitations.
Like everyone I don't want to pay any more tax than I have to but to pay less tax, in nearly every scenario, you have to spend more money. This means less dollars in your family budget.
The average wage in Australia is about $82,000. This means that for every dollar the average wage and salary earner pays about 25c in tax. To get a bigger refund for every $1 you spend on allowable deductions you get back 25c, you're out of pocket 75c. So while you'll get a bigger tax refund you will have less money in your pocket to pay the mortgage, groceries, go see a movie or have a holiday.
Another one we get asked about a lot is should I get an investment property to reduce my tax? No. Don't buy an investment property if your main reason is to reduce your tax bill. A "tax effective" rental property has to be negatively geared - in other words the costs (interest, rates, repairs, water, insurance etc) has to be more than the rent you received. If for the year it cost you $2000 to have a "tax effective" investment property then the average worker will get a tax saving of $500 - so you're still out of pocket $1500. The tax man will not pay for your investment property – that’s just pure bs.
My fav - and what I think is the best bang for your buck is superannuation. If you can salary sacrifice to super the average Australian can save 10c in each dollar of tax. Not much I know, but while you have to go without the money now it is still your dollars and come that happy retirement place you get your money back. Woohoo.
So if you are not an average aussie and are earning the big bucks that put you in the top tax bracket of 49c in the $1 - you still will be out of pocket 51c for every dollar you spend on tax deductions. Yes, you'll get a bigger tax refund but you still have to spend money!
And finally - family trusts. You can't set up a family trust and split your wages and salary if you are an average worker. For starters you would have to be a contractor, not a pay as you go earner, and even then there are rules around how contractors who only supply labour and only work for one or very few businesses (so contractors that are really employees) get taxed on their earnings.
If you set up a family trust specifically to income split to pay less tax you could potentially be in breach of Part IVA - the bit of the tax law to do with tax avoidance. Not something you really want to mess with.
There are legitimate things you can do to reduce your taxable income and for real businesses (not contractors that should really be employees) there are options and special rules to encourage business to succeed. But, regardless of whether you are a 9 to 5 worker getting a weekly pay packet or a small business operator it costs money to reduce tax - the old adage of having to spend money to make money.
Ooh and if you really want to spend some money just to save tax I'm more than happy to put my bill up - after all tax agent fees are a legitimate deduction.