Australia Tax Optimization

Section 1 — Quick Reference

Quick Reference

Field	Value
Country	Australia (Commonwealth of Australia)
Currency	AUD
Tax year	1 July – 30 June (2025–26)
Primary legislation	Income Tax Assessment Act 1997 (ITAA 1997); Income Tax Assessment Act 1936 (ITAA 1936)
Anti-avoidance	Part IVA, ITAA 1936 (General Anti-Avoidance Rule)
Tax authority	Australian Taxation Office (ATO)
Filing deadline	31 October (self-lodgers); agent-lodged extensions vary
Individual top rate	45% + 2% Medicare levy = 47% effective
Company rate (base rate entity)	25% (aggregated turnover < $50m, ≤80% passive income)
Company rate (other)	30%
CGT discount (individuals)	50% on assets held >12 months
GST rate	10%
Superannuation guarantee	12% (2025–26)

Individual Tax Brackets (2025–26)

Individual Tax Brackets (2025–26)

Taxable Income (AUD)	Rate	Cumulative Tax
0 – 18,200	0%	$0
18,201 – 45,000	16%	$4,288
45,001 – 135,000	30%	$31,288
135,001 – 190,000	37%	$51,638
190,001+	45%	—

• Medicare levy and surcharge — Plus 2% Medicare levy on total taxable income. Medicare levy surcharge (1%–1.5%) applies if no private hospital cover and income exceeds $101,000 (single).
• 2026-27 rates and the standard deduction — Do not carry 2025-26 rates into 2026-27; the resident scale changed for 2026-27, and the basic tax on $180,000 taxable income in 2025-26 was $47,938 before Medicare levy and offsets. From 2026-27, section 25-130 provides a standard deduction for qualifying assessable labour income: the lesser of $1,000 and that income, reduced by specified actual deductions, to a minimum of zero. It is not an extra $1,000 on top of work expenses; certain insurance premiums and trade, business or professional association memberships are excluded from the reduction. ((ATO, Tax rates: Australian residents; ITAA 1997 (Cth) s 25-130))

Section 2 — Income Splitting & Structuring

Sole Trader vs Company

• Sole trader taxation — all profit taxed at individual marginal rates (up to 47%). Simple structure, ABN-based. Losses offset other personal income (subject to non-commercial loss rules, s 35-10 ITAA 1997). No separate return. ((s 35-10 ITAA 1997))
• Company (Pty Ltd) taxation — profits taxed at 25% (base rate entity) or 30%. Profits retained in the company are not taxed again until distributed. Franking credits attached to dividends prevent double taxation. Division 7A (ITAA 1936, ss 109C–109T) treats loans and payments to shareholders/associates as unfranked dividends unless complying loan agreements are in place. ((Division 7A, ITAA 1936, ss 109C–109T))
• Rule of thumb — incorporation threshold — incorporation typically benefits when taxable profit consistently exceeds ~$100,000, allowing retention at 25% vs 47% marginal. Below $45,000 profit, sole trader is usually superior (16% marginal vs 25% corporate + extraction costs).
• Model the whole position — Do not recommend incorporation from profit alone: include company tax, personal tax on remuneration and distributions, superannuation, payroll obligations, administration and access to cash. Company money retained after tax is not the shareholder's after-tax spending money, base rate entity status must be checked for the year, and the personal services income rules can attribute an individual's income back to them regardless of the entity. ((TR 2022/3))

Salary vs Dividends (Company Directors)

• Salary — deductible to the company, taxed to the individual, triggers PAYG withholding and super guarantee (12%). Generates assessable income for super contribution purposes.
• Franked dividends — not deductible to the company, carry franking credits. Grossed-up amount included in individual return, franking credit offset applied. No super guarantee obligation.
• Optimal mix — pay enough salary to cover super guarantee obligations and utilise the tax-free threshold ($18,200); distribute remaining as franked dividends. Model the combined company + personal tax.
• Division 7A before drawing on company cash — Review private company payments, loans and debt forgiveness under Division 7A, including loan documentation, deadlines, benchmark interest and minimum repayments, before treating an advance as tax-free access to profits. ((ATO, Division 7A calculator and decision tool))

Family Trusts

Discretionary (family) trusts allow income distribution to adult family members in lower brackets. The trustee resolution must be made before 30 June. Key constraints:

• Section 100A reimbursement agreements — trust distributions to low-income beneficiaries who redirect funds back to the primary earner are void. ((Section 100A (ITAA 1936)))
• How section 100A operates — Section 100A applies where a reimbursement agreement exists: it treats the beneficiary as not presently entitled for tax purposes and exposes the trustee to tax on that share. It does not make every distribution to a lower-income beneficiary void. Inspect the deed, beneficiary eligibility, valid resolutions made before 30 June and who receives the economic benefit; never backdate a resolution. ((TR 2022/4); section 100A)
• Family Trust Election (FTE) — required to access franking credits and carry forward losses.
• Minor beneficiaries penalty rates — Minor beneficiaries (under 18) taxed at penalty rates on unearned income (Division 6AA) — effectively 66% on amounts above $416. ((Division 6AA))

Superannuation as Income Splitting

• Spouse contributions — up to $3,000 contribution to a low-income spouse's super fund → tax offset of up to $540 (18% of $3,000). Spouse must earn <$40,000.
• Contribution splitting — up to 85% of concessional contributions from the prior year can be rolled to a spouse's super account (not a deduction, but shifts wealth tax-efficiently).

Section 3 — Deductions Most People Miss

Deductions Most People Miss

Deduction	Legislation	Notes
Home office running expenses	s 8-1 ITAA 1997	Fixed rate 67c/hour (revised method from 1 July 2022) or actual cost. Must keep contemporaneous records (timesheets, diary)
Self-education expenses	s 8-1	Must have sufficient connection to current income-earning activities. The former $250 reduction does not apply to expenses incurred from 1 July 2022
Phone and internet	s 8-1	Apportion business use %. ATO accepts a representative 4-week diary
Income protection insurance	s 8-1	Premiums for policies replacing lost income are deductible
Professional memberships and subscriptions	s 8-1	CPA Australia, CA ANZ, industry bodies
Tax agent fees	s 25-5	Cost of managing tax affairs including prior-year amendments
Union fees	s 8-1	Full deduction
Tools and equipment (≤$300)	s 8-1	Immediately deductible if cost ≤$300 and used for income
Travel between workplaces	s 8-1	Deductible (but NOT home-to-work commuting)
Donations to DGRs	Div 30	Deductible gifts to Deductible Gift Recipients
Prepaid expenses ≤12 months	s 82KZM ITAA 1936	Non-business individuals can prepay deductible expenses before 30 June for immediate deduction

• Self-education $250 reduction removed — The $250 reduction no longer applies to self-education expenses incurred from 1 July 2022; the expense must still connect with current income-earning activities. ((ATO, Self-education expenses))

Section 4 — Capital Allowances Optimization

Instant Asset Write-Off (2025–26)

• Instant asset write-off eligibility — Small businesses (aggregated turnover <$10m) can immediately deduct assets costing less than $20,000 (per asset) first used or installed ready for use by 30 June 2026. ((Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Act 2025))
• Simplified depreciation pool — Assets ≥$20,000 enter the small business simplified depreciation pool: 15% first year, 30% declining balance thereafter. Pool balance <$20,000 at 30 June 2026 can be written off entirely.
• Ongoing $20,000 threshold from 1 July 2026 — The Treasury Laws Amendment (Tax Reform No. 2) Act 2026, assented to on 26 August 2026 with schedules commencing 1 October 2026, makes the $20,000 instant asset write-off threshold ongoing, with application provisions covering assets first used or installed from 1 July 2026. Simplified depreciation eligibility and the taxable-use rules still apply, and a deduction reduces taxable income without reimbursing the purchase price. ((Treasury Laws Amendment (Tax Reform No. 2) Act 2026))

General Depreciation

General Depreciation Methods

Method	How It Works
Diminishing value	Base value × (days held / 365) × (200% / effective life)
Prime cost (straight-line)	Cost × (days held / 365) × (100% / effective life)

• Effective life determination — Effective life determined by ATO schedule (TR 2024/3) or taxpayer's own reasonable estimate. Self-assessed life must be supportable if audited. ((TR 2024/3))

Motor Vehicles

• Car cost limit for depreciation (2025–26) — $69,674 AUD (Only the business-use portion of this amount can be depreciated) AUD
• Business-use substantiation — Business-use percentage must be substantiated via logbook (minimum continuous 12-week period, valid for 5 years) or cents-per-km method (88c/km for 2025–26, max 5,000 business km = $4,400; 91c/km from 2026–27).

Section 5 — Loss Utilization

Individual/Sole Trader Losses

• Loss carry forward — Tax losses carry forward indefinitely (s 36-15 ITAA 1997). No carry-back for individuals. ((s 36-15 ITAA 1997))
• Non-commercial loss rules (Division 35) — four tests — business losses can only offset non-business income if one of four tests is met: 1. Assessable income ≥$20,000 from the activity; 2. Profit in 3 of the last 5 years (including current year); 3. Real property used ≥$500,000; 4. Other assets used ≥$100,000. If no test is met AND adjusted taxable income >$250,000, loss is quarantined. Commissioner discretion may apply. ((Division 35))
• Income requirement comes first — The ordinary pathway needs both the income requirement (adjusted taxable income below $250,000) and one of the four activity tests; the exceptions and the Commissioner's discretion are separate pathways. A loss is not deferred only when income exceeds the threshold and all four tests fail. ((ITAA 1997 (Cth) s 35-10))

Company Losses

• Continuity of ownership test (COT) — Carry forward subject to continuity of ownership test (COT) — same persons must maintain >50% voting, dividend, and capital rights (s 165-12). If COT fails, the same business test (SBT) may save losses if the company carries on the same business (s 165-13). SBT was broadened in 2015 to a "similar business test." ((s 165-12; s 165-13))

Loss Carry-Back (Companies)

• Temporary loss carry-back (2019-20 to 2022-23) — The temporary regime for companies with aggregated turnover below $5 billion ended with the 2022-23 income year; do not model it for later years.
• Corporate loss carry-back from 2026-27 — The Tax Reform No. 2 Act's loss carry-back regime applies to assessments for income years starting on or after 1 July 2026, following its 1 October 2026 commencement. Eligible corporate tax entities that are not significant global entities can carry qualifying losses to either or both of the preceding two income years, subject to the choice, lodgement and franking conditions. ((Treasury Laws Amendment (Tax Reform No. 2) Act 2026))

Section 6 — Timing Strategies

Timing Strategies

Strategy	Detail
Defer income to next FY	Delay invoicing until after 30 June if cash-basis taxpayer. For accrual-basis, delay delivery/completion
Accelerate deductions before 30 June	Prepay up to 12 months of deductible expenses (rent, insurance, subscriptions) — s 82KZM ITAA 1936
Bring forward asset purchases	Use instant asset write-off before 30 June deadline. Asset must be first used or installed ready for use
Concessional super contribution	Maximise contributions before 30 June — $30,000 cap (2025–26). Carry-forward unused cap available if total super balance <$500,000
Capital gains harvest	Realise capital losses before 30 June to offset gains. Wash sale rules: ATO will scrutinise buybacks of substantially similar assets
Defer capital gains	Hold assets >12 months to access 50% CGT discount (individuals and trusts)
Small business CGT concessions	Div 152: 15-year exemption, 50% active asset reduction, retirement exemption ($500k lifetime cap), rollover. Net assets <$6m or aggregated turnover <$2m

Section 7 — GST Optimization

GST Optimization

Topic	Detail
Registration threshold	Mandatory if current or projected GST turnover ≥$75,000 ($150,000 for non-profits). Voluntary registration below threshold to claim input tax credits
Cash vs accrual reporting	Cash basis available if aggregated turnover <$10m. Defers GST on income until payment received
Input tax credits	Claim GST on business purchases. Apportionment required for mixed (business/private) use
GST-free supplies	Exports, health, education, some food — no GST charged, but input credits still claimable. Valuable for exporters
Going concern	Sale of a business as a going concern is GST-free (Div 38) — avoids cash flow impact on business transfers
Margin scheme (property)	GST calculated on margin (sale price minus purchase price) rather than full sale price. Buyer cannot claim input credits
Tax periods	Monthly, quarterly, or annual BAS. Quarterly if turnover <$20m. Annual election available if turnover <$75,000

• Conditions, not elections — Going-concern and margin-scheme treatment depend on their own conditions and agreement between the parties; neither is an automatic election that makes a sale cheaper. Establish registration, creditable purpose and valid tax invoices before claiming credits.

Section 8 — Superannuation & Social Security Optimization

Superannuation (Retirement)

Superannuation (Retirement)

Strategy	Detail	Legislation
Concessional contributions	Cap $30,000/year (2025–26). Tax-deductible for self-employed. Taxed at 15% in the fund	s 291-20 ITAA 1997
Carry-forward unused cap	Unused concessional cap from up to 5 prior years if total super balance <$500,000 at prior 30 June	s 291-170
Non-concessional contributions	Cap $120,000/year (or $360,000 under bring-forward rule over 3 years). Not deductible, but earnings taxed at max 15% in super	s 292-85
Salary sacrifice	Pre-tax super contributions reduce assessable income. Counted towards concessional cap
Spouse contribution offset	Contribute to low-income spouse's super for tax offset up to $540	s 290-230
Government co-contribution	Contribute to low-income earner's super; government matches up to $500 (income <$45,400)	s 12A SGAA
Division 293 tax	Additional 15% contributions tax on individuals with income + concessional contributions >$250,000	Div 293

• 2026-27 concessional cap — The general concessional cap is $32,500 for 2026-27, up from $30,000 in 2025-26. Count contributions across all funds, including employer and salary sacrifice amounts, and check fund receipt dates and the actual unused amounts before relying on the carry-forward. Before claiming a personal contribution deduction, lodge the notice of intent and obtain the fund's acknowledgement, and weigh contributions tax, Division 293 and preservation against the personal tax saving. ((ATO, Concessional contributions cap; ATO, Personal super contributions))

Medicare Levy Surcharge Avoidance

• MLS avoidance — Private hospital cover avoids 1%–1.5% MLS if income >$101,000 (single) or >$202,000 (family). Cost of basic hospital cover is often less than the MLS.

Section 9 — Investment & Retirement

Investment & Retirement

Strategy	Detail
CGT 50% discount	Individuals and trusts — hold assets >12 months for 50% discount on net capital gain
Negative gearing	Investment property/share portfolio borrowing costs exceed income → net loss offsets other income. No cap in Australia
Franking credits	Australian company dividends carry franking credits. Excess credits refundable for individuals and super funds
Super in pension phase	Earnings on assets supporting income streams in pension phase are tax-free (up to transfer balance cap of $1.9m, indexed)
Transition to retirement (TTR)	Access super as income stream from preservation age while still working. Earnings in TTR taxed at 15% (not tax-free)

• Model the transaction year — The Tax Reform No. 1 Act changes CGT from 1 July 2027 and restricts excess residential rental deductions from 2027-28, with transitional rules and exceptions, and the working Australians tax offset also starts in 2027-28. Model capital gains and rental deductions for the actual year of the transaction and keep a dated comparison with assumptions, eligibility evidence, implementation deadlines and whole-year tax and cash effects. ((Treasury Laws Amendment (Tax Reform No. 1) Act 2026))

Section 10 — Red Lines (GAAR & Scrutiny Triggers)

Part IVA (General Anti-Avoidance Rule)

• Part IVA GAAR — ITAA 1936, Part IVA (ss 177A–177J). The Commissioner can cancel a tax benefit arising from a scheme if the dominant purpose (assessed objectively) was to obtain the tax benefit. Penalties: 50% shortfall (scheme); 25% if reasonably arguable position. ((ITAA 1936, Part IVA (ss 177A–177J)))

ATO Scrutiny Triggers

ATO Scrutiny Triggers

Trigger	Risk
Trust distributions to low-income beneficiaries with reimbursement agreements	s 100A — voided, trustee taxed at top rate
Division 7A non-complying loans	Deemed unfranked dividend
Non-commercial losses claimed without meeting 4 tests	Loss quarantined, amended assessment
Large work-related deductions vs income	Risk of audit
Wash sales around 30 June	CGT loss disallowed
Artificial income splitting via interposed entities	Part IVA application
Personal services income (PSI) through company or trust	PSI rules attribute income back to individual (Div 86–87)
Excessive salary sacrifice to reduce Division 293 exposure	ATO scrutiny, potential SG shortfall
Contractor vs employee misclassification	Super guarantee charge, penalties
Cryptocurrency — unreported disposal events	ATO data-matching from exchanges

Absolute Prohibitions

• NEVER advise backdating trust distribution resolutions past 30 June — NEVER advise backdating trust distribution resolutions past 30 June
• NEVER advise sham contracting arrangements — NEVER advise sham contracting arrangements
• NEVER advise fabricating deductions or inflating claims — NEVER advise fabricating deductions or inflating claims
• NEVER structure arrangements with the dominant purpose of tax avoidance — NEVER structure arrangements with the dominant purpose of tax avoidance
• NEVER advise ignoring Division 7A requirements for private company loans — NEVER advise ignoring Division 7A requirements for private company loans

Section 11 — Annual Tax Planning Calendar

Annual Tax Planning Calendar

When	Action
July	New FY starts. Review prior year's unused concessional super cap. Lodge prior-year BAS
August–September	Obtain prior-year tax assessment. Review loss carry-forward position
October	Self-lodger deadline (31 Oct). Review investment portfolio for CGT planning
November–December	Mid-year tax review. Adjust PAYG instalments if income changed materially
January	Superannuation guarantee due (Q2). Review Division 7A loan repayments
February–March	Lodge Q2 BAS. Model year-end tax position. Begin pre-30 June planning
April–May	Execute prepayment strategies. Make concessional super contributions. Review asset purchases for instant write-off
June (before 30 June)	Critical month. Finalise trust distribution resolutions. Make super contributions (allow processing time — contribute by ~25 June). Prepay expenses. Realise capital losses. Lodge PAYG variation if needed

Section 12 — Cash Impact Examples

Example 1 — Sole Trader Incorporates

Before: Sole trader, $180,000 net profit. Tax: ~$51,067 + $3,600 Medicare = $54,667.

After: Pty Ltd, pays $80,000 salary + $12,000 super. Retains $88,000 in company at 25% = $22,000 company tax. Personal tax on $80,000 salary: ~$16,788 + $1,600 Medicare = $18,388. Total tax: $40,388. Saving: ~$14,279.

Example 2 — Maximising Super Contributions

Sole trader, $120,000 profit. Claims $30,000 concessional super contribution (deductible). Taxable income drops to $90,000. Tax saving at 30% marginal: $9,000 less 15% super tax ($4,500) = net saving $4,500 + compounding in super environment.

Example 3 — Instant Asset Write-Off

Small business buys 3 laptops at $2,500 each and a vehicle at $18,000. Total: $25,500 immediately deductible (each asset <$20,000). At 30% marginal rate = $7,650 cash saving in the year of purchase vs multi-year depreciation.

Example 4 — Negative Gearing Investment Property

Employee earns $120,000. Investment property: $25,000 rent less $35,000 expenses (interest, rates, depreciation) = $10,000 net loss. Taxable income: $110,000. Tax saving at 30% marginal: $3,000 cash refund via PAYG variation.

Disclaimer

This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional (such as a CPA, CA, registered tax agent, or equivalent licensed practitioner in your jurisdiction) before filing or acting upon.

The most up-to-date, verified version of this skill is maintained at openaccountants.com.

Contributed by Ryan Duguid.

Contributed by Ryan Duguid.