Top 10 Tax Reduction Strategies for High-Income Earners in Australia

Australia uses a progressive tax system, which means the more money you earn, the higher your tax rate. While this is designed to create fairness, it also means high-income earners can lose a large portion of their earnings to taxes. For instance, if you make over $180,000 a year, the income above that amount is taxed at 45%, plus a 2% Medicare levy. This adds up quickly. A person earning $250,000 could end up paying nearly $88,000 in tax annually—more than a third of their income.
To help reduce the tax burden, many high-income Australians use legal tax planning strategies. These strategies are approved by the Australian Taxation Office (ATO) and help reduce the amount of income that is taxed. That means more money stays in your pocket—without breaking the rules.

In this article, we’ll explore the 10 most effective tax strategies for high-income earners in Australia. You’ll learn what each strategy is, how it works, and how it can help you reduce your tax bill. Some are simple, like claiming deductions or getting private health insurance. Others, like setting up a family trust or using debt recycling, are more advanced and may need expert help. Either way, these tools can help you keep more of your money and build long-term wealth.

Summary Table: Tax Strategies for High-Income Earners

Strategy	How It Works	Tax Benefit Potential
Salary Sacrificing to Super	Sends part of the salary to the super fund at only 15% tax	Save 30% + in tax
Negative Gearing	Uses rental property losses to reduce taxable income	Offset $5k–$20k/year
Discretionary (Family) Trust	Splits income with family members in lower tax brackets	Lower total family tax
Private Health Insurance	Avoids extra Medicare Levy Surcharge	Save up to $5k/year
Capital Gains Tax Discount	Cuts capital gains tax in half after 12 months	Save thousands
Work-Related Deductions	Lowers taxable income using eligible business expenses	Varies by profession
Debt Recycling	Turns home loan debt into tax-deductible investment debt	$1k–$10k in savings
Franked Dividends	Uses company-paid tax credits to reduce your tax bill	Offsets tax owed
Tax-Effective Investments	Invests in projects with built-in tax breaks	Lower taxable income
Donations to Charity	Deducts qualified donations from taxable income	Save $100s–$1000s

1. Salary Sacrificing to Superannuation

Salary sacrificing means choosing to get less take-home pay and having more of your salary sent to your superannuation account instead. Why do this? Super contributions are only taxed at 15%, while regular income can be taxed up to 47% (including the Medicare levy).

Example:

• You earn $200,000 per year.
• You ask your employer to salary sacrifice $20,000 into super.
• That $20,000 is taxed at 15%, saving you about $6,400 in tax compared to if you had taken it as salary.

As of 2025, you can contribute up to $30,000 in pre-tax super contributions each year (including employer contributions). This is one of the easiest and most powerful tax tools for high-income earners, and it helps grow your retirement savings.

2. Negative Gearing on Property Investments

Negative gearing is when the cost of owning a rental property is more than the income it makes from rent. This creates a loss, which you can then subtract from your other income, reducing your total taxable income.

Example:

• Your property earns $25,000 in rent.
• Your mortgage interest, insurance, rates, and maintenance cost $35,000.
• Loss: $10,000.
• You can claim $10,000 against your salary to pay less tax.

This strategy is especially popular with property investors and professionals. It works best when the property increases in value over time and you plan to sell for a profit later.

3. Using a Discretionary (Family) Trust

A discretionary trust lets you split income among family members. Instead of taking all the income yourself and paying high taxes, you can distribute it to people who earn less and are taxed less.

Example:

• You earn investment income of $60,000 through a trust.
• Your adult child earns only $18,000 per year (below the tax-free threshold).
• You allocate $18,000 to them tax-free, and the rest to yourself or your partner at lower tax rates.

This reduces the overall tax paid by the family. Trusts also help protect assets and can be passed down across generations. However, they need proper setup, legal documents, and yearly accounting.

Read Blog- What is a Journal Entry in Accounting?

4. Buying Private Health Insurance

If you make more than $97,000 (single) or $194,000 (family) and don’t have private hospital insurance, you’ll pay the Medicare Levy Surcharge (MLS)—an extra tax of 1% to 1.5% of your income.

Example:

• You earn $250,000.
• You don’t have private health cover.
• You may pay up to $3,750 in MLS.

A good private hospital plan usually costs less than the surcharge, so you save money and get better health care options. This is a quick win for high-income earners.

5. Capital Gains Tax Discount

When you sell an investment (like shares or property) for more than you paid, you get a capital gain. If you’ve held the asset for over 12 months, you only pay tax on half of the gain.

Example:

• Bought shares for $50,000.
• Sold them 2 years later for $90,000.
• Capital gain = $40,000.
• Discounted gain = $20,000.
• You only pay tax on $20,000 instead of $40,000.

This 50% discount is one of the biggest tax benefits for investors and encourages long-term investing.

6. Claiming Work-Related Deductions

High-income earners often have many job-related expenses they can claim. These deductions reduce your taxable income and include:

• Work-from-home costs (electricity, internet, computer)
• Work travel (flights, mileage, parking)
• Training courses, licenses, and certifications
• Tools, uniforms, and equipment
• Professional memberships or union fees

Example:

• You spend $5,000 on work-related expenses.
• That $5,000 is deducted from your income, which could save you up to $2,350 in tax at a 47% tax rate.

To claim deductions, keep receipts and accurate records.

7. Debt Recycling

Debt recycling is a more advanced strategy. It involves turning your home loan (which is not tax-deductible) into investment debt (which is deductible).

How It Works:

1. Pay extra toward your home loan.
2. Re-borrow that same amount as an investment loan (e.g., for shares).
3. The interest on the investment loan is now tax-deductible.

This lets you reduce bad debt, build wealth, and lower your tax bill at the same time. Because this strategy involves borrowing and investing, it carries some risk and should be done with help from a financial advisor.

8. Franked Dividends and Imputation Credits

Some Australian companies pay dividends with franking credits attached. These credits show that the company has already paid tax on its profits.

Example:

• A company pays you a $700 dividend with a $300 franking credit.
• The ATO counts it as $1,000 in income.
• But since the company already paid 30% tax on it, you get credit for that.

If your tax rate is less than 30%, you may even get a refund. If it's more, you only pay the difference. This is a very efficient way for high-income earners to invest and manage their taxes.

9. Investing in Tax-Effective Products

Certain investment options offer special tax benefits. These include

• Early Stage Innovation Companies (ESICs) – give tax offsets and CGT exemptions.
• Tax-deferred managed funds – delay when you pay tax.
• Agricultural and infrastructure schemes – offer upfront tax deductions.

These strategies can lower your taxable income, but they often come with higher risk and strict rules. Always speak with a licensed advisor before investing in these.

Read This- Profit and Loss Statement

10. Donating to Charities

Donations to registered charities (called DGRs – Deductible Gift Recipients) are tax-deductible if they’re $2 or more.

Example:

• You donate $2,000 to a children’s hospital foundation.
• You can deduct the full $2,000 from your taxable income.

This is a great way to support good causes and reduce your tax at the same time. Just make sure you get and keep your donation receipts.

Use Smart Tax Strategies to Keep More of Your Income

High-income earners in Australia face some of the highest tax rates in the world—but you don’t have to overpay. There are many smart, legal strategies you can use to reduce your tax bill and increase your savings. Whether it's salary sacrificing into super, claiming property losses, or setting up a family trust, each approach helps you keep more of what you earn. Tools like franked dividends, charity donations, and private health insurance also offer easy wins with long-term benefits.
The key is to plan ahead, stay compliant, and use the right mix of strategies for your situation. Every taxpayer is different, so what works for one person may not work for another. That’s why getting expert advice is so important.

Global FPO is here to help. Our team of experienced tax professionals can guide you through every step, from choosing the best tax-saving strategies to managing your investments and preparing your returns. If you're a high-income earner looking to reduce your taxes and grow your wealth, reach out to Global FPO today and start planning with confidence.

FAQs

1. Is salary sacrificing into superannuation really worth it for high-income earners?
Yes. Contributions to super are taxed at just 15%, which is much lower than the up to 47% you might pay on regular income. Salary sacrificing can save you thousands in tax and boost your retirement savings at the same time.

2. How does a family trust help reduce tax?
A discretionary (family) trust lets you split income among family members who may be in lower tax brackets. This means the overall tax paid by the family is reduced, especially if some members earn below the tax-free threshold.

3. What is negative gearing, and how does it lower my tax?
Negative gearing happens when your investment property costs more to own than it earns in rent. This loss can be used to offset your other income, reducing your overall taxable income and tax bill.

4. Are franking credits still worth it for high-income investors?
Yes. Franking credits let you reduce or even eliminate the tax owed on dividends because the company has already paid tax on those profits. They’re especially valuable for investors with large portfolios.

5. Why should I get help from a tax professional like Global FPO?
Many strategies, like debt recycling, trusts, and tax-effective investments, are complex and can be risky without expert guidance. A firm like Global FPO helps you choose the right approach, stay compliant with ATO rules, and maximize your tax savings safely.