Tax Strategies for High-Income Earners Australia (2024–25)

If you’re earning more than $180,000 per year, you already know that tax can take a substantial bite out of your pay packet. In fact, for many high-income earners in Australia, nearly half of each additional dollar can be lost to the tax office.

For the 2024–25 financial year, smart tax planning has become even more significant because of the Stage 3 tax cuts now in effect.

With these new tax changes, some Australians will benefit from slightly adjusted brackets, but higher earners still face hefty tax obligations. Proactive tax planning is therefore essential for anyone looking to retain as much of their hard-earned income as possible.

In this guide, you’ll find practical, easy-to-follow strategies designed specifically for employees who earn salaries above $180,000 per year. The aim here is simple: legally minimise your tax, maximise your income, and stay comfortably within ATO regulations.

The 2024–25 Tax Landscape for High Earners

Before diving into the strategies, let’s briefly look at how the tax landscape shapes up for high earners in the 2024–25 financial year.

Personal Income Tax Brackets for 2024–25

The new Stage 3 tax cuts introduced some adjustments. Here’s how the tax brackets currently apply:

If you earn $200,000 per year, the first $190,000 is taxed at lower rates, and only the remaining $10,000 is taxed at the highest marginal rate of 45%.

Medicare Levy and Medicare Levy Surcharge

Every Australian resident pays a Medicare Levy of 2% of their taxable income. Beyond that, high-income earners without private hospital insurance face the Medicare Levy Surcharge (MLS). Here’s how it works for singles in 2024–25:

If you’re earning $180,000 without private health insurance, you could end up paying an extra $2,700 annually due to the surcharge. Simply maintaining appropriate hospital insurance avoids this unnecessary tax expense.

Effective vs Marginal Tax Rate

Your marginal tax rate, the percentage of tax paid on your next dollar of income,could be as high as 45%. Your effective tax rate (the overall tax percentage you pay) is lower, since lower brackets apply to portions of your income. For example, on $200,000 income, your effective tax rate might sit closer to 31%, which is still substantial, but lower than your marginal rate.

Maximising Super Opportunities to Reduce Taxable Income

Superannuation remains one of Australia’s most powerful tax-effective savings vehicles, particularly for high-income earners. Making the most of your super contributions is an easy and effective strategy to reduce your taxable income significantly and increase your retirement savings.

Pre-Tax (Concessional) Contributions: New Limits

For 2024–25, you can contribute up to $30,000 pre-tax into your superannuation fund. These contributions include employer contributions (Super Guarantee) and any salary sacrifice or personal deductible contributions you make. Contributions within this cap are taxed at a lower rate, generally 15%, compared to your personal marginal rate of potentially 37% to 45%.

Let’s say your employer contributes $20,000 into your super. You still have the opportunity to add another $10,000 via salary sacrifice. If your marginal rate is 37%, contributing that additional $10,000 could save you approximately $2,200 in tax, even after paying the 15% contributions tax.

Catch-Up Contributions (Carry-Forward Rule)

If you haven’t fully utilised your concessional contributions cap in previous years, you can use the carry-forward rule. Any unused cap amounts from the past five years (since 2018–19) can be used if your total super balance is under $500,000. For example, if you have $15,000 of unused concessional cap from last year, your total pre-tax contributions for this year could go up to $45,000, potentially increasing your tax savings significantly.

Division 293 Tax: Important Consideration for Very High Earners

If your combined income and concessional super contributions exceed $250,000, an additional tax called Division 293 applies. It imposes an extra 15% tax on your concessional contributions, bringing the effective tax rate on your contributions to 30%. While less attractive, this is still better than paying tax at your top marginal rate of 45%.

Superannuation Strategy Example

Here’s how the numbers might look in practice for someone earning $200,000:

Salary Packaging and Work-Related Tax Deductions

Salary packaging is one of the most straightforward methods to reduce your taxable income as a high-income employee. Many employers offer salary packaging arrangements, enabling you to cover certain expenses directly from your pre-tax income.

Novated Car Leases

Novated leases are one of the most popular salary packaging strategies. This allows you to pay for your car lease and its running expenses using your pre-tax salary. For instance, if you earn $200,000 and you salary package a novated car lease costing $15,000 annually, your taxable income reduces to $185,000. Given your marginal tax rate might be 37% or 45%, this arrangement can save thousands of dollars annually.

Electronic Devices and Equipment

You can also salary package devices such as laptops, mobile phones, or tablets if used predominantly for work. Employers often offer this because these devices are Fringe Benefits Tax (FBT) exempt when they meet the criteria. Paying for a $2,000 laptop pre-tax can save you roughly $740 at a 37% tax rate.

Work-Related Deductions You Should Be Claiming

Many high-income earners overlook smaller deductions and tax offsets, but these can collectively add up to significant savings:

• Home Office Expenses: With many professionals working remotely, you can claim deductions for home office use. The fixed rate method of 67 cents per hour can cover electricity, internet, and other running costs.
• Self-Education Costs: Courses directly related to your current role, such as postgraduate degrees or certifications, can be fully deductible. For example, spending $6,000 on professional education can save you around $2,220 if your marginal rate is 37%.
• Professional Memberships and Subscriptions: Annual fees to industry bodies, professional subscriptions, or union fees are deductible.
• Income Protection Insurance: Premiums for income protection policies outside of superannuation are fully deductible.
• Tools and Equipment: Items costing over $300 used predominantly for work, such as laptops or professional equipment, can be depreciated over several years.

Ensure you keep clear records, receipts, and documentation. The ATO routinely audits high earners, making thorough documentation essential.

Smart Investment Tax Planning Strategies

Strategic investment property decisions can significantly lower your tax burden, especially when considering property and shares.

Negative Gearing Tax Benefits

Negative gearing occurs when your investment expenses exceed the income generated, creating a deductible loss. High-income earners commonly use this strategy with rental properties.

For example, if your rental property generates $25,000 income annually, but your costs (interest, maintenance, depreciation) total $32,000, you have a $7,000 negative gearing loss. At a 37% tax rate, this loss would result in a tax saving of $2,590. While this saves tax immediately, your investment should ultimately aim for long-term capital growth to justify ongoing losses.

Capital Gains Tax (CGT) Management

How you handle capital gains directly affects your tax liability. The following approaches can help manage your CGT obligations:

• Hold Assets Longer Than 12 Months: Assets held longer than a year receive a 50% CGT discount. Selling a property or shares after holding them for at least 12 months means only half of your gain is taxable.
• Offset Gains with Capital Losses: If you have investments performing poorly, consider realising these losses to offset gains. For example, a $20,000 gain offset by a $10,000 loss leaves only $10,000 taxable, halving your CGT.
• Time Sales Strategically: Realise gains in years where your income is lower, such as during career breaks or sabbaticals, to reduce overall tax.

Dividend Income and Franking Credits

High earners investing in Australian shares benefit from dividends with attached franking credits. Franking credits are taxes already paid by the company, reducing your tax liability. While dividends from shares are still taxable at your marginal rate, franking credits offset the amount of tax payable, providing a partial tax credit for high-income investors.

Using Trusts and Legal Structures (Advanced Strategies)

While typically associated with business owners, family trusts and investment companies can still provide tax advantages to salaried high-income earners who have significant investment portfolios.

Family Trusts: Useful for Investment Income, Not Salary

As an employee, you can’t redirect your regular salary into a family trust. Personal Services Income (PSI) rules prevent this approach. However, trusts can effectively manage investment income, distributing earnings among family members in lower tax brackets. For instance, interest or dividends earned by the trust can be allocated to a non-working spouse or adult children in lower tax brackets, significantly reducing overall household tax.

Consider the following example:

While trusts require initial setup and ongoing administration, the tax savings often outweigh these costs if substantial investment income exists.

Investment Companies: Long-Term Tax Deferral and Planning

An alternative strategy involves investing through a private investment company. Investment companies pay a flat corporate tax rate of 30% on passive income, potentially lower than your personal marginal rate of 45%.

However, profits eventually paid as dividends will attract additional tax in your hands. The main benefit here is tax deferral. You can retain and reinvest income within the company, delaying further taxation until you draw dividends, potentially at retirement when your personal tax rate may be lower.

Compliance and Cautions

The ATO is vigilant regarding misuse of trusts and investment companies. Ensure all setups are properly structured and have genuine economic purposes beyond tax reduction alone. Trusts and investment companies come with complexities and ongoing costs, making professional advice essential.

Philanthropic Giving and Charitable Donations

Donating to charities is rewarding in many ways. Not only are you contributing positively to society, but your generosity also brings meaningful tax savings.

How Charitable Donations Reduce Your Tax

Every donation of $2 or more made to an eligible charity (registered as a Deductible Gift Recipient or DGR) is tax-deductible. This means your taxable income directly decreases by the amount donated.

For instance, if you earn $200,000 and donate $5,000 to charity, your taxable income reduces to $195,000. With your marginal tax rate at 45%, your $5,000 donation effectively costs you only $2,750 after tax savings of $2,250.

Structured Giving: Private Ancillary Funds and Donor-Advised Funds

For substantial donations, structured giving arrangements can amplify tax benefits. Private ancillary funds and donor-advised funds allow you to make large donations upfront, gaining an immediate tax deduction, while distributing the money to charities over several years.

Suppose you contribute $30,000 into a donor-advised fund in a high-income year. At a 45% tax rate, this saves you $13,500 immediately. You then gradually distribute this money to your chosen charities over subsequent years.

Documentation and Rules

Always keep clear records of your donations, including receipts from the charity. Remember, donations providing personal benefits, like raffle tickets or charity dinners, typically aren’t deductible. Ensure your chosen charity is an officially registered Deductible Gift Recipient by checking the ATO register.

Example Tax-Saving Scenario: High-Income Earner in Action

Consider Alex, a high-income employee earning a salary of $200,000. Here’s a side-by-side comparison showing Alex’s tax position with and without implementing effective tax strategies:

Total Savings from Tax Strategies: $12,500 (plus $15,000 additional super contributions).

Frequently Asked Questions (FAQ)

What Is the Top Marginal Tax Rate in 2024–25, and When Does It Apply?

The top marginal tax rate is 45%, applicable to income exceeding $190,000 per year from 1 July 2024. The Medicare Levy of 2% also applies, effectively bringing the total to 47% on earnings above this threshold. Without private health cover, the Medicare Levy Surcharge (MLS) can further increase your marginal rate by up to 1.5%.

I Earn Over $180,000; Do I Pay Both Medicare Levy and Medicare Levy Surcharge?

You must pay the standard Medicare Levy (2%) regardless of your income. The MLS (up to an additional 1.5%) applies only if your income exceeds $97,000 (single) or $194,000 (family) and you don’t have suitable private hospital insurance. Maintaining appropriate hospital insurance allows you to avoid the MLS entirely.

How Much Can I Contribute to Super in 2024–25 to Reduce My Tax?

The concessional (pre-tax) contribution cap is $30,000 for 2024–25. This includes your employer’s compulsory contributions plus any extra salary sacrifice or personal contributions. Exceeding this cap means paying tax at your marginal rate on the excess amount. If your total income and super contributions exceed $250,000, Division 293 tax (an extra 15%) also applies, increasing contributions tax to 30%.

Is Negative Gearing Still Beneficial for High-Income Earners?

Negative gearing remains beneficial for high-income earners, particularly if your investments are expected to appreciate significantly. Losses from investments such as rental properties can offset taxable income, substantially reducing your immediate tax liability. However, it should be approached primarily as an investment decision rather than purely a tax-minimisation strategy.

Can Employees Use Family Trusts or Companies to Lower Salary Tax?

You can’t divert your regular PAYG salary into trusts or companies due to personal services income (PSI) rules. However, you can use these structures for investment income. For instance, a family trust can distribute dividends or rental income to beneficiaries with lower marginal tax rates. Investment companies provide tax deferral, with corporate tax rates lower than personal marginal rates.

I Received a Large Bonus; How Can I Reduce Tax on It?

Salary sacrificing part of your bonus into super is a straightforward option if arranged before payment. You can also increase tax-deductible expenses in the same year, such as self-education, work-related equipment, or charitable donations, to offset this additional income. Planning ahead ensures you retain more of your bonus.

What Common Tax Planning Mistakes Should High-Income Earners Avoid?

Common errors include neglecting to maximise super contributions, poor documentation of deductions, forgetting about Division 293 tax, not maintaining private hospital insurance to avoid MLS, and engaging in aggressive tax schemes. Good tax planning is about careful, compliant use of available strategies, not shortcuts.

Key Takeaways

• Proactive tax planning helps high-income earners significantly reduce their annual tax bills.
• Superannuation contributions (up to the $30,000 concessional cap) offer immediate tax savings by reducing taxable income.
• The catch-up contributions rule can further increase tax-effective super contributions if your total super balance is under $500,000.
• Maintain suitable private hospital insurance to avoid the Medicare Levy Surcharge of up to 1.5%.
• Consider salary packaging, especially novated leases and electronic devices, to pay for essential items from pre-tax earnings.
• Ensure you claim all relevant work-related deductions, including home office expenses, self-education costs, professional memberships, and income protection insurance.
• Use negative gearing carefully and strategically for property and share investments to reduce taxable income and build long-term wealth.
• Plan capital gains carefully, holding investments longer than 12 months to receive the 50% CGT discount and offset gains with losses when beneficial.
• Explore family trusts or investment companies for managing investment income effectively across different family members or to defer taxes.
• Leverage charitable donations and structured philanthropic giving as both a rewarding personal decision and a tax-saving strategy.
• Keep accurate records to substantiate all deductions and remain compliant with ATO guidelines.

Want tailored advice on maximising your tax savings this financial year? Contact the expert team at KNS Accountants today. We’ll ensure you’re using every available strategy to retain more of your hard-earned income.