The 80/20 rule, the ATO and you
ATO 80/20 rule
The 80/20 rule relates to personal services income (PSI). Depending on where the individual sits within the 80/20 rule can affect they report their income on their own tax return and what deductions they can claim. Contrary to popular belief the 80/20 rule is not about whether one can be considered a “contractor” due to the percentage amount of income generated for a sole business.
If you are a sole trader the below can help reduce your tax
Please note these tips can vary from one person to another and need to be customised for the individual.
Super contributions – This is a long-term strategy depending on how old you are, but the immediate benefits that you get from the additional contributions aren’t seen in the same way as your salary by the ATO. This is a forward way of thinking in ensuring you get the most out of your salary through investing through SMSF or later in your life enjoying spoils.
Negatively gear an investment property – Doing a lot of research and investing in the real estate market can be another way to reduce your taxable income. You will have access to a lot of resources out there on how you can invest in the real estate market. We also have some opinions in this area and we will be sharing it with our audience from time to time.
Private Health Insurance – there has been a lot of opinions around the true value of private health insurance today, especially with the hikes in premiums, and this makes it even more interesting. You will most likely pay less on your taxes when you sign up, but it is important to balance the decisions against your individual needs.
Sacrificing salary for vehicle – there are some task and roles that need a vehicle, and this provides you with the chance to reduce your taxable income by sacrificing your salary and using it to buy a car, going with the upgraded model if possible.
Donate to Charity – If the charity you are planning to contribute to offers a tax receipt, then you can expect to pay less in taxes and you will feel better for your generosity and thoughtfulness.
About Lan Nguyen
Lan is the Founder and Chief Strategist at Success Accounting Group, Melbourne based CA firm. In a matter of short 8 years she has built up a reputable Chartered accounting firm with 3 offices and a team of 6 professional accountants and support team members. Her mission is to provide Innovative and Strategic Financial advice to help her customers make smarter financial decisions today for a brighter future.
Success Accounting Group is for established business owners who would like help to grow a sustained business. As a business owner you understand what drives your business success with our accounting team taking care of the rest.
Success and Wealth
Success Accounting Group Pty Ltd
Oakleigh, VIC, 3166
