“How can I reduce my tax?” is a common question we get asked.
This is especially true at this time of year when many of us are conducting mid-year reviews and considering optimising our deductions and tax planning.
While proactive, year-round tax planning is ideal, there are still strategies you can implement before the financial year ends—for your business and also for your personal finances, because dividends will eventually land here.
Part 1: Reducing your business tax
Bring forward or defer your tax
Bringing forward deductions or deferring income can help reduce taxable income for the current year. However, make sure you balance this strategy with the following, as it’s not always beneficial as follows:
- Cash flow planning – Some deferrals might provide short-term tax benefits. But they could also impact future cash flow.
- Change in tax rates – When changes in tax rates are proposed, there could be opportunities to minimise tax by shifting the timing of your income and expenses.
In some cases, it might make sense to bring income forward or delay expenses to make the most of your current marginal tax rate. This can be particularly useful if you’re expecting a major financial event next year, like a capital gain, that could push you into a higher tax bracket.
Top up your super contributions
Contributions to your superannuation can be tax-deductible, allowing you to reduce taxable income while boosting your retirement savings.
In addition to the standard superannuation guarantee (SG), you can make extra contributions.
You can contribute up to the concessional contributions cap—currently $30,000 for the 2024-25 financial year. Contributions exceeding these limits may be subject to additional tax.
If finding lump sums to top up at the end of the year is difficult, consider making more regular contributions throughout the year. Don’t forget your notice of intent to claim if you’re making it personally rather than directly from the business.
Keep in mind Div 293 tax that applies an extra 15% tax on concessional contributions when your adjusted income is over $250,000.
Payout bonuses and rewards
Bonuses or rewards for employees aren’t just great for boosting morale. They can also help reduce your taxes. That’s because they’re considered part of your business’s operational costs and can be classified as business expenses.
If you document and commit to the bonuses before 30 June, you can claim them in that financial year even if they’re paid in the next.
Select the right business structure
How you structure your business—whether as a sole trader, partnership, company, or trust—has significant tax implications.
- Sole trader/partnership – These structures are simple and easy to set up but offer limited tax planning opportunities. Profits are taxed at your individual rate even if it’s retained in the business, and personal liability is a concern.
- Company – A company structure provides limited liability and allows for more tax planning. You can pay yourself a salary and/or dividends, and the company benefits from a lower tax rate on profits (currently 25% for base rate entities in Australia). This structure is ideal if you plan to reinvest profits or grow over time.
- Family trust – A trust offers flexibility for income splitting, allowing you to distribute income among family members in lower tax brackets. This can help optimise your overall tax position, but all profit is distributed and tax paid, even if some is retained in the business and reinvested.
Each structure has its own benefits and drawbacks, so it’s important to choose the one that best aligns with your business goals and tax strategy. Consulting with a tax professional is always a good idea to ensure you’re making the right choice.
Choose tax-deductible loans
Another way to reduce your taxes is to ensure your business borrows wisely.
Loans taken out for investments, such as purchasing equipment for your business or investing in property, are typically tax-deductible. This means the interest paid on these loans can be deducted from your taxable income, lowering your tax liability.
In some circumstances, you can pre-pay interest on these loans to bring forward deductions.
On the other hand, loans for your home or personal expenses, like a personal car or holiday, are generally non-deductible and don’t offer tax benefits for your business.
Part 2: Reducing your personal tax
Negative gearing into property
Negative gearing can be a valuable tool for helping to reduce your personal tax.
It allows you to offset losses from investment property, such as interest on loans, maintenance costs, and depreciation, against your other taxable income, like salary or business income. This can reduce your taxable income in the short term, lowering the amount of tax you pay.
However, while it provides immediate tax relief, negative gearing should be viewed as part of a long-term investment strategy.
The goal is to benefit from potential capital growth in the property over time rather than relying solely on short-term tax advantages. Always consider your overall financial goals and consult with a financial advisor to ensure they align with your investment plan.
Negative gearing into stocks
Just like with property, negative gearing in shares involves borrowing money to invest in the share market.
If the interest you pay on the loan is more than the income you earn from dividends, the shortfall (the loss) can be offset against other income, reducing your overall taxable income.
If the shares pay fully franked dividends, it can be even more tax-effective.
Say you borrow $50,000 to invest in shares and pay $3,000 in interest. If your dividends for the year are only $2,000, you may be able to deduct the $1,000 difference (plus receive franking credits) against your regular income, saving you tax now while potentially building wealth over time.
Use capital gains tax planning
When you sell an asset (like shares or property) for more than you paid, you may be liable for capital gains tax (CGT). But with smart planning, you can reduce what you owe.
One of the most effective strategies is to hold the asset for more than 12 months, which makes you eligible for a 50% CGT discount on the gain. You can also use tax-loss harvesting. This means selling underperforming assets to trigger a capital loss, which can then be used to offset your capital gains.
By timing sales and strategically offsetting gains with losses, you can significantly reduce your CGT bill.
Set up a bucket company
A bucket company is a company set up to receive income distributions from a family trust.
Because companies are taxed at a flat rate (currently 30%, or 25% for base rate entities), distributing income to a bucket company can cap the tax rate on that portion of income, often much lower than if it were distributed to individuals in higher tax brackets.
Keep in mind that if the cash doesn’t flow through to the company it will likely only be a short-term deferral.
Here’s how it works:
Instead of distributing all trust income to individual beneficiaries (who may pay up to 47% in tax), a portion is distributed to the bucket company.
The company pays tax at its lower rate and retains the income.
You can then reinvest that income or loan it back to the trust or business (following Division 7A rules).
Claim home office/WFH deductions
If you have a home office or work from home at all—even if it’s a day a week—you can claim a portion of home expenses as tax-deductible. The expenses you may be able to claim for include:
A portion of your utilities, phone and internet
Depreciation costs on equipment and furniture
Stationery and office supplies
Occupancy costs, such as a portion of your mortgage and rent, council rates and home insurance (limited eligibility)
But be careful. It’s important to ensure that the deductions are related to your work activities and that calculations are in line with tax guidelines.
Related: Changes to work-from-home tax deductions
Correctly structure personal finances
Not all debt is treated equally at tax time. Interest on loans used to generate income, like investment property loans or margin loans for shares, is generally tax-deductible.
On the other hand, interest on personal loans or your home mortgage (your primary residence) isn’t.
To reduce your overall tax liability, consider:
- Paying down non-deductible debt first (e.g., your home loan).
- Keeping investment loans separate to clearly identify deductible interest.
- Using interest-only loans for investments to maximise deductions (if suitable for your strategy).
- Avoiding mixed-purpose loans, as they can complicate deductibility and limit tax benefits.
The goal is to shift your debt structure in a way that supports investment growth while allowing you to claim the maximum allowable deductions.
Ready to reduce your tax bill?
Implementing these strategies before the end of the financial year—and throughout the year—can significantly reduce your tax bill.
However, since tax solutions vary depending on your unique situation, it’s a good idea to consult a tax professional to ensure you’re maximising your opportunities.
Want help choosing the best strategies to reduce your tax bill? Reach out to your Maxim advisor or contact our team today.
