9 Smart ways to save tax on salary this year

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9 Clever ways to save tax on salary this year
and reduce your taxable income.

In recent years, there have been a few discernible shifts in the employment landscape. As businesses strive for increased efficiency, employees are working longer hours.

Additionally, it appears that employees are shouldering a higher portion of costs due to employers’ increased focus on cutting costs and, consequently, their far less generous reimbursement policies.

Thankfully, they can reduce taxable income each year and receive a tax refund at their marginal tax rate by deducting work-related expenses.

This article discusses salary-related tax deductions, who the ATO targets and solutions to improve cash flow and taxes. You will also explore 9 ways to save tax on salary.

9-Smart-Ways-To-Save-Tax-On-Salary-This-Year

9 Best tax saving options for employees

There are 9 ways that you can reduce taxable income and save tax on salary. By following these tips, you can also get a good tax return.

1. Usage of Car

Taxpayers who use their vehicles to generate taxable income may be able to deduct part of their expenses.

You can reduce your taxable income taxes if you use your automobile to travel. The following are tax-deductible expenses -

  • While on duty, from your regular place of employment to a different place, such as a client's location, and then returning to your regular place of employment or going straight home. 
  • Travelling from your home to a different workspace for work-related objectives, followed by a trip back to your regular workplace or your home.

You can't claim a tax deduction for the cost of regular commutes between your home and place of employment because it is a private expense. It is not yours even if:

  • You carry out minor duties, like picking up the mail on your way to work.
  • You have to make more than one daily trip between home and work.
  • If you are "on-call," your employer may phone you at home to ask you to report for duty.
  • There is no public transportation close to your workplace.
  • You put in overtime or work outside of regular business hours.

If your work is nomadic, you can tell by looking at the three following traits:

  • Travel is an essential component of your job.
  • You work at various locations throughout your regular shifts and don't have a set office.
  • You frequently work at multiple locations before going home.

Example:

Danielle's job as a plumber's laborer daily takes him to a different location. Each day, he makes a direct trip from his house to a different location to begin work. 

He must frequently move between locations as part of his job so that the ATO would classify his occupation as itinerant.

However, a construction worker who spends a few months working at one building site before moving on to another is not performing itinerant employment.

Tip:

My profession is painting, and I just bought a brand-new ute. I have a full-time job and always have my gear with me. Even though I use my car only for work, I want to know what I may write off and whether I need to keep a log book.

Given that you drive a ute (a commercial vehicle that weighs more than one tonne) and always have paint supplies with you. Since you will use it for professional purposes only, there is no need to keep a logbook.

However, suppose you wish to utilize the logbook approach. In that case, you must save all receipts for payments made on loans and expenses like gas, registration, insurance, servicing, repairs, and other financial payments such as lease or interest.

Usage of Car

How to calculate tax deductions for car expenses?

The 12-week logbook technique - If you choose to use the logbook method, buy a logbook from a newsstand. Fill it out for 12 weeks, and keep track of all expenses related to maintaining your vehicles, such as gas, registration, insurance, servicing, repairs, lease payments, batteries, tyres, and other related costs.

The effort is worthwhile because, unless you change jobs or cars, you only need to complete a new logbook every five years, and deductions can amount to thousands of dollars.

According to your percentage of use for work-related purposes, you can use the logbook method to recover a portion of the car's running costs, including depreciation and interest.

Cents per kilometer method - According to the cents per kilometer approach, regardless of engine size, you must estimate the number of kilometers you have driven up to a maximum of 5000 and multiply that number by a fiat rate of 72 cents per kilometer.

You must demonstrate to the income tax office that you did the trip to generate money and that your claim depends on a reasonable calculation.

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2. Travel

Travel expenses, such as automotive expenses, plane, bus, train, or taxi fares, and car rental fees, that you incur while working or moving from one place of business to another are tax-deductible. 

On work travels away from home, lodging and meals could also be deductible.

Tip:

You must keep a trip journal to claim your travel expenses. This rule is applicable to longer than five-day interstate or international business travel. 

The dates, locations, hours, and length of the activities and travel must all be specified. Additionally, it's a good idea to preserve the business cards of the people you meet and, even better, include this information in a report or presentation you deliver when you return to work.

Making a successful travel tax claim involves specific substantiation requirements.

A trip diary is a unique record of the actions made while travelling. Its goal is to identify which activities served to generate income so that you may differentiate between deductible and non-deductible expenses. An activity is noted by indicating:

  • Date and around what time it starts
  • Duration
  • Location
  • Nature

Taxpayers occasionally blend business with pleasure, and it's not unusual for them to skip a personal vacation after an international meeting. 

However, travel costs for business-related conferences, seminars, and other events are only deductible because they are connected to your income-generating activities.

It would be best if you allocated your travel costs when you travel for professional and personal reasons. Only travel to and from an overseas conference for the event itself is deductible.

A cost for lodging, meals or any other incidental item must be divided into work-related and personal activities based on what you did on the day you incurred the expense.

Some firms provide a travel allowance to cover an employee's overnight travel-related costs like lodging, food, drink, and incidentals.

3. Uniform

You can claim a tax deduction for certain types of professional attire and the price of purchasing or changing clothing, uniforms, and footwear. 

But only the following uniform types qualify for an tax deduction:

If you do your laundry, you can claim $1 for each load as long as it only contains eligible garments and covers all necessary steps for washing, drying, and ironing. It drops to 50 cents for each load if additional laundry is done.

If your total laundry expenses are more than $150, you must provide proof of your claim.

There must be a direct link between the clothing expense and activities that generate income to qualify for a tax deduction. Even if your employer mandates you to wear it, you generally cannot claim a tax deduction for conventional clothing that is a part of a uniform.

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4. Home Office

Nowadays, more and more people work from home as a convenient way to reconcile the competing demands of job and family. 

Even if the space is not designated exclusively for work-related activities, you may be eligible to deduct the expenditures associated with maintaining your home office if you conduct some of your business there.

There are three ways, according to the ATO, to deduct your home office operating costs:

Actual cost method - The portion of your actual expenses that correspond to your work.

Fixed cost method - Fifty-two cents per hour for heating, lighting, and cooling, the depreciation of home office furniture, and the portion of other home office costs that are relevant to your work.

Shortcut method - Eighty cents per hour for the expedited procedure.

The following expenses related to your place of residence are usually not tax deductible if your income is provided to you in the capacity of an employee:

  • Municipal fees
  • Homeowners' insurance rates
  • Mortgage interest 
  • Rent

Only in cases where your home office is regarded as a place of business are you able to deduct occupation costs.

Tip:

Keep a diary (for a minimum of four weeks) to track how much time you spend working from home. You can then use the cents per hour approach to calculate a depreciation deduction for electricity, gas, and home office furniture. 

5. Other work-related income tax deduction

Other work-related costs you as an employee may incur besides those already listed include:

  • Briefcases
  • Personal organizers and calculators
  • Logbooks and diaries
  • First-aid training
  • Income-protection insurances
  • Interest on borrowed funds used to pay for business-related expenditures
  • Cellular phones
  • Postage
  • Professional workshops, conferences, and seminars
  • Paper goods
  • Specialized periodicals, journals, and magazines
  • Tools for the trade
  • Dues to unions.

Tip:

Instead of claiming deductions related to work, having your company pay for them is best. You only receive a portion of every expense you incur back, not the total amount, based on the marginal tax rates.

The ATO will accept your claim based on the following estimations if the amount of time you spent on the phone for work-related purposes was less than $50:

  • 25 cents for each landline call made for business purposes
  • 75 cents for each work-related mobile call
  • 10 cents for each text message that is relevant to work.

If you have purchased assets that cost more than $300, you must depreciate them rather than immediately deduct the total price.

FAQ:

Can you submit a claim for costs incurred from purchases made through the National Disability Insurance Scheme?

Unfortunately, you cannot deduct any costs you incurred (or assets you bought) in connection with any exempt income, including money from the NDIS.

6. ATO Hit List

The ATO releases a "hit list" of professions each year that will be subject to scrutiny for work-related costs based on a study of prior returns.

In general, the ATO carefully examines a variety of deduction requests, including those for travel, self-education, and auto expenditures. 

Additionally, it examines tax returns from prior years to identify specific professions to "bring under the microscope" where:

  • Average claim amounts are large
  • The number of people making claims has increased.
  • Many individuals are making claims for the first time.

The ATO uses that data and writes to those who work in those professions believing that prevention is far preferable to treatment. 

The ATO has provided straightforward guidelines for submitting your work-related expense claim correctly.

Intentional disregard of tax law is punishable by a penalty of 75% of unpaid taxes, reckless disregard is punishable by 50%, and negligence is punishable by 25%. 

7. Redundancy

There has been a lot of uncertainty in the global economy over the past year since many people have lost their jobs as a result of COVID-19's effects and the expiration of government stimulus programmes like JobKeeper.

If there is any good news, it has to do with your favorable tax treatment if you were fired from your job and received a legitimate redundancy payment.

Redundancy

The tax-free component of genuine redundancy

You must take a legitimate layoff tax-free portion in cash. The tax-free maximum for the 2022–23 financial year is $1,331, plus an additional $5,672 for each year of service that has been performed.

Redundancy ratio balance

Any amount above the tax-free threshold is regarded as an "employment termination payout."

If you are over 58 or under 59, the first $225,000 is taxed at 17% or 32%, respectively. Any additional payment is subject to a 47% tax. Only the portion of a payment that, when added to other taxable income, does not exceed $180,000 is eligible for these tax advantages.

Unclaimed leave benefits

Regarding leaving accrued before August 16, 1997, just 5% of any unused annual or long-service leave is taxed at your marginal rate. If you quit a job due to an actual layoff, disability, or early retirement plan, the remaining payment is taxed at 32%. 

You can't carry over any unused leave entitlements into your super fund. Please note that if you quit your job for any other reason, the tax calculation on unused leave entitlements is different.

8. Working a second job

The first $18,200 of your annual taxable income is tax-free if you are considered an Australian resident for tax purposes. This is referred to as a tax-free threshold. 

The payer who pays the highest wage should be used to claim the tax-free threshold. Your second employer must withhold more tax from your salary if you receive more revenue.

Suppose you currently claim the tax-free threshold with one payer and want to do so from a different payer. In that case, you must complete a withholding declaration notifying your existing payer that you no longer intend to claim the tax-free threshold.

You can tell a payer to withhold more tax if inadequate taxes are withheld from payments. If your payer withholds tax at the prescribed rates, you're not required to increase it.

At the end of the financial year, you are not subject to any penalties other than the requirement to raise more funds for your tax payment.

You can arrange for a PAYG withholding variation form to be filled out and lower the amount withdrawn from your regular pay if you believe that too much tax is being deducted from one of your payments.

A significant tax refund is available if you wait until the end of the year.

9. Salary Sacrifice

Salary sacrificing is a great way to reduce your taxable income and increase your take-home pay. It is highly typical for employees to set up a salary-sacrificing agreement with their employer and "bundle" a portion of their future salary or wages in exchange for comparable perks offered by their employer. 

Superannuation and fringe benefits, such as company cars, private health insurance, and other spending reimbursements, may be included in these perks.

There is no cap on the quantity or kinds of perks that can be forfeited as long as they are included in your compensation. They are merely substituting for what would have otherwise been given as wages.

Under an effective salary sacrifice agreement, employees' payments to a superannuation fund are taxed as employer contributions at a rate of 15%. 

If you are paying the highest marginal tax rate, doing this is a better tax savings option than paying 47% tax on your cash wage.

It is well known that the ATO disapproves of any agreements made after the work has been completed, including unwritten agreements.

You are permitted to enter into a verbal agreement, but should the taxman perform an audit of your finances, it might be difficult for you to prove the realities of your agreement.

By following these tips, you can save a lot of tax on your salary. Remember to talk to your accountant or financial advisor to make sure that you are taking advantage of all the tax deductions and credits that you are entitled to.

By doing so, you will keep more money in your pocket and have more money to save or invest in property or stock market. And that's a good feeling!

FAQs

How do I maximize my tax deductions?

There are a few things you can do to make sure you're getting the most out of your tax deductions. First, keep track of all your expenses throughout the year. This includes everything from office supplies to travel expenses. Keeping good records will make it much easier to claim deductions come tax time.

Second, familiarize yourself with the various deductions that are available to you. There are deductions for everything from business-related expenses to charitable donations. The more you know about what's available, the better chance you have of taking advantage of them.

Finally, remember that timing is everything when it comes to claiming deductions. Many deductions can be carried forward to future years if you miss them in the current year.

What is Superannuation?

Superannuation is a long-term savings plan that allows you to set aside money for your retirement. The money you put into your super account is taxed at a lower rate than your income, which means you can potentially grow your savings more quickly. You can also access certain government benefits and tax concessions if you're a member of a super fund.

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