Sam, an accountant, earns $78,000 per year which puts him in the $37,000 - $80,000 tax bracket taxable at 32.5%. His company gives him a $3,000 raise that will take his total earnings to $81,000 per year. However, that also pushes him into a new bracket – $80,000 - $180,000 – at a tax rate of 37%. This raises his taxable income by $1,200 per year. In essence, Sam’s $3,000 increase is almost inconsequential after tax.

Of course, Sam is frustrated when he realizes how this “raise” makes him liable for more tax, but fortunately for him, he has some options that will help get around this unfavourable situation.  Here are a few things he could do:

1.     Sacrifice the increase

Relax! The idea is not to forfeit the extra $3,000, but to channel it differently. Rather than taking the $3,000 increase, Sam can decides to put it into his super. That way, he remains in his initial tax bracket and the extra $3,000 gets taxed at 15%.

There are other ways to do this aside from using his super, such as a novated leasing arrangement. Attaching a payment plan such as car and housing plans to your salary also offsets some taxable income.

2.     Negative Gearing

Okay, so negative gearing against shares and/or properties in itself is not the soundest economic decision you can make, because of the potential losses you could incur. However, consider the fact that you can still offset these losses against your taxable income. This way, your taxable income is kept at a minimum and you remain in a lower tax bracket.

3.     Postpone your deductions

It’s normal to eventually grow into a new bracket now and then. You can, however, offset the potential losses by thinking ahead. Do you have payment obligations like membership fees, course fees, and other expenses in the near future? You can push them into the next financial year – where your new tax bracket kicks in – by paying for them after June 30. With this, deductions will be done at a later date, which then accrues tax advantages to you.