How to Reduce Your Taxable Income Legally

The tax system openly rewards certain choices — saving for retirement, spending money to earn income, giving to charity. Using those rewards isn't a loophole; it's the design working as intended.

Here are five legal ways to shrink your taxable income — the number the ATO (the Australian Taxation Office, aka the tax office) actually taxes, after deductions come off — including honest caveats on the one everybody asks about.

Salary sacrifice — salary paid straight into super, your retirement savings account, instead of your bank account — moves income out of your marginal rate (the tax rate on the last dollar you earn, up to 47% including the Medicare levy) and into super's flat 15% entry tax. Personal super top-ups you claim a deduction for work the same way. Nothing else on this list saves more per dollar.

The FY2025-26 cap on these before-tax contributions is $30,000, shared with the compulsory 12% super your employer pays. And if your total super balance was under $500,000, unused cap from the past five years can be carried forward for a bigger catch-up contribution.

Work-related expenses cut taxable income dollar for dollar: home office running costs, tools and equipment, professional memberships and subscriptions, courses tied to your current job, and donations of $2 or more to registered charities.

The test is simple: you spent the money, it relates to earning your income, and you can prove it. Don't invent claims, but don't leave real ones on the table either — our Deduction Estimator gives you a quick read on what yours are worth.

Tax is worked out one year at a time, so which side of 30 June something lands on can matter. Expecting a lower income next year? Pushing an invoice or a bonus into next year (where genuinely possible) shifts the tax into a cheaper year.

Expenses work in reverse: pay up to 12 months of deductible costs in advance — income protection insurance, interest on an investment loan — and the deduction lands this year.

Capital gains — the profit when you sell an investment for more than you paid — care about timing too. Hold an asset for over 12 months and individuals only pay tax on half the gain (the 50% CGT discount), and banking a gain in a low-income year keeps more of it out of the high brackets.

Salary packaging means paying for certain things out of pre-tax salary, where your employer offers it. The classic is a novated car lease, where car payments come out of your pay before tax — and eligible electric vehicles can even skip fringe benefits tax, the tax employers usually pay on work perks.

Work items like a laptop or phone used mainly for work can also be packaged with no fringe benefits tax.

The standout deal belongs to public hospital and not-for-profit employees, who can package a capped amount of everyday living expenses tax-free — often worth thousands. Ask your payroll team.

You can't split your salary — wages are taxed to the person who earned them, full stop. Schemes pretending otherwise run straight into the ATO's anti-avoidance rules, a law called Part IVA that lets the tax office unwind fake arrangements.

What does work is holding investments tax-smartly from day one. Put a savings account, shares, or an investment property in the lower-earning partner's name, and the income is taxed at their lower rate.

Family trusts — legal structures that can spread investment or business income among adult family members — are another option. But they carry real setup and running costs, and payments to kids under 18 cop penalty tax rates. Get professional advice.

Everything above is legal because it involves real transactions with real substance — actual super contributions, actual expenses, actual ownership. The line gets crossed when an arrangement exists purely to dodge tax.

Start with the easy wins: claim the deductions you already qualify for, then look at super contributions if your cash flow can spare it. Curious what a change would do to your take-home pay? Model it in the Scenario Planner before you commit.