When you have a low income, it pays to know some of the tips and tricks to help you either pay less tax or get the maximum benefits you are entitled to.
If you are a low income earner, your primary goal (if possible) should be to increase your earnings. This is not something everyone can do; you could be a stay at home parent, unable to work for personal reasons or simply struggling to find a suitable job.
This is when it pays to be smart, and seek tax advice from your accountant on how to maximise the income you do or do not make (or your partner makes) to leverage the offsets and subsidies that are in place to help lower income earners.
This guide will help point out some key things to consider when it comes to tax time, and you classify yourself as a low income earner.
Check if you are eligible for the low income tax offset
If you earn less than $66,667 per year, you will be eligible for the low income tax offset from the Government.
- If you earn less than $37,000; you will get the full tax reduction of $445.
- If you earn above $37,000 and below $66,667; you will still get a low income tax offset, albeit less then the full $445.
For every dollar over $37,000 – your tax offset is reduced by 1.5 cents until you get no tax offset.
To claim the low income tax offset, you don’t need to do anything. The ATO will work this out for you when you lodge your tax return each year.
Remember, the low income tax offset can only reduce the amount of tax you pay to the point of $0 and does not reduce your Medicare levy.
Get $540 (for your spouse) if they contribute to your Superannuation
If you earn less than $13,800 per year (in total, including the below $3,000 super contribution), and your spouse contributes $3,000 to your Superannuation fund, your spouse who contributed for you can get up to 18% of $3,000 ($540) as a tax rebate on his/her return.
This can sound a bit tricky, but essentially before your spouse contributes the $3,000 – here is what you need to remember:
- You need to earn $10,800 or less before you contribute $3,000
- This number includes fringe benefits, employer income and employer superannuation
Speak with your superannuation fund (or accountant) on how to best make the $3,000 deposit.
Remember, depositing $3,000 into your spouses Superannuation account then helps them grow their Super (at a time when income is not coming in regularly) while giving you unto $540 off your own taxable income.
If you are eligible, the Government will pay you 50 cents for every dollar you personally put into Superannuation
If you earn under $36,021 per year, every dollar you put into Superannuation (up to $1000) will receive an extra 50 cents from the Government.
This means if you deposit $1000 yourself, the Government will give you $500 extra.
All you need to do is contact your Superannuation fund and request information on how to make a voluntary contribution yourself; you will however need to do this before June 30th as the ATO will then use your tax return to confirm you are eligible for the extra $500.
Not earning any income at all? Consider asking to use post-tax earnings from your spouse or family members to get your hands on $1,000; this will help you get the free $500. It all adds up and keeps the money within the family.
Be sure to let your accountant know you are doing this (or have done this) when completing your tax return.
As a side note, if your earnings are above $36,021 – the amount you will get from the Government starts to slide downwards until the point by which you are no longer eligible.
If your family run a business, consider doing work for them to get paid; it will help you earn and help them pay less tax
If your husband or wife runs a family business, consider asking to be on the books and find a way to contribute to the business.
The first $18,200 of income you earn in any year is tax free. This means you could get paid $18,200 from your family business without paying any personal income tax.
This helps you by generating $18,200 worth of income, while helping them by not paying themselves an extra $18,200 (which could very well see them pay more tax as they creep up the tax threshold brackets).
If you can legitimately help them, it’s a great way to get a lump sum of money out of the business and help each other out.
This article was produced by Savings Guide and Scott Kay of Integrity Plus Accounting.
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Scott Kay is an Accountpreneur (Chartered Accountant and Entrepreneur) who loves people and bridging the gaps between:
- Knowledge and action
- Tax/money and the more important things in life!
Scott featured on A Current Affair in 2010 with his blog for teaching young people about money. In the years since, he has grown in many ways including his passion to help individuals succeed financially particularly with property and business via clever thinking and technology.