If your taxable income enters the top resident tax bracket, the marginal income tax rate on the portion above $190,000 is 45%. The Medicare levy may also apply. This guide explains eight tax planning areas for higher-income Australians in the 2025-26 financial year. The right treatment depends on your facts, records and eligibility.
What Counts as a High-Income Earner in Australia?
The 2025-26 income tax brackets for Australian residents are:
| Taxable Income | Tax Payable |
|---|---|
| $0 - $18,200 | Nil |
| $18,201 - $45,000 | 16c for each $1 over $18,200 |
| $45,001 - $135,000 | $4,288 + 30c for each $1 over $45,000 |
| $135,001 - $190,000 | $31,288 + 37c for each $1 over $135,000 |
| $190,001 and over | $51,638 + 45c for each $1 over $190,000 |
The Medicare levy is generally 2% of taxable income, subject to the applicable rules, thresholds and exemptions. For a resident individual above $190,000, the combined marginal rate can be 47% where the Medicare levy applies.
Strategy 1: Maximise Concessional Super Contributions
The concessional contributions cap for 2025-26 is $30,000, covering employer contributions including SG, salary sacrifice and personal deductible contributions. Contributions are generally taxed at 15% in the fund, subject to the rules. If your total super balance was below $500,000 at 30 June 2025, you may be able to use unused concessional cap amounts from the previous five years. Check the cap, carry-forward amount and Division 293 position before contributing.
Division 293 note: Division 293 may apply when your Division 293 income and concessional contributions exceed $250,000. The additional tax is generally 15% of the lesser of the amount above the threshold and the relevant concessional contributions, subject to the detailed rules. The result must be calculated for the individual circumstances. For a detailed guide, see SMSF property guide.
Strategy 2: Salary Sacrifice Arrangements
You agree with your employer to redirect part of your salary into super before tax is applied, reducing your taxable income immediately.
How the Numbers Work
| Gross Salary | Sacrifice Amount | Tax Saving at Marginal Rate |
|---|---|---|
| $120,000 | $10,000 | $3,000 (30% rate) |
| $200,000 | $10,000 | $4,700 (47% rate) |
| $300,000 | $10,000 | Requires an individual calculation, including Division 293 and fund tax |
For a person with a 47% marginal rate, a valid $10,000 salary sacrifice may reduce take-home pay by around $5,300 while $8,500 reaches super after 15% contributions tax, before Division 293 and other personal factors. It is not correct to describe $8,500 as the personal net cost. Always check that SG plus sacrifice does not breach the $30,000 cap; excess concessional contributions have their own assessment and offset rules; check the cap, carry-forward eligibility and any Division 293 exposure. See tax strategy service.
Strategy 3: Family Trust Income Splitting
A discretionary family trust may distribute trust income to beneficiaries, but the tax result depends on the trust deed, the type of income, the resolutions, each beneficiary's circumstances and the integrity rules. Distributions must not be treated as a simple way to divert income on paper. Obtain specific advice before relying on an income-splitting outcome.
Section 100A risk: The ATO's PCG 2022/2 flags distributions where the beneficiary does not genuinely receive and control the funds as high-risk. Distributions must have real economic substance - money must flow to the beneficiary's account and be theirs to use. An invalid or reimbursement arrangement can produce adverse tax outcomes under the trust deed, section 100A and related rules. Trustee assessment at 47% is not automatic in every case. See family trust guide.
Strategy 4: Investment Property - Negative Gearing and Depreciation
When your property expenses (interest, rates, insurance, depreciation) exceed rental income, a deductible net rental loss may offset other income under the applicable rules. From the 2027–28 income year, losses on established residential property acquired after the May 2026 cut-off are generally restricted, subject to grandfathering and new-build exceptions. For a taxpayer whose applicable marginal rate including Medicare levy is 47%, a $20,000 deductible loss may reduce tax by up to $9,400 before other interactions. The actual result depends on the taxpayer's rate, taxable income and the deductibility of each expense. Commission a quantity surveyor's depreciation schedule - non-cash deductions on plant and equipment and capital works are often thousands of dollars per year that most investors leave unclaimed.
PAYG withholding variation: Apply to the ATO to reduce tax withheld from each pay cycle rather than waiting for a refund at tax time. Apply by 30 April. See investment property structure guide.
Strategy 5: Capital Gains Tax Timing
Individuals and trusts may be eligible for the 50% CGT discount when an eligible asset has been owned for at least 12 months, after applying the relevant rules and capital losses. For many property sales, the CGT event is generally the contract date rather than settlement, but the contract and circumstances should be checked before relying on that timing.
Before 30 June, review your portfolio for unrealised losses to crystallise and offset against gains already realised this year. If your income will be lower next year (retirement, parental leave), defer asset sales to be taxed at a lower marginal rate.
Strategy 6: Bucket Company Strategy
A bucket company may be taxed at the 25% company rate where it qualifies as a base rate entity and the relevant rules are satisfied. That does not make the money personally available without further tax consequences. Division 7A, loan documentation, distributions and franking must be considered before using this structure.
Division 7A trap: Funds in the bucket company must stay in the company or be subject to a formal complying loan agreement. Withdrawals without proper documentation are treated as unfranked dividends and taxed at your full marginal rate. This strategy suits high-income families who can leave profits in the company and reinvest them.
Strategy 7: Debt Recycling
Debt recycling converts non-deductible home loan debt into deductible investment debt - without increasing total borrowings. The process: make extra repayments on your home loan, immediately redraw the same amount into a dedicated investment loan split, then invest in income-producing assets (shares, ETFs). The investment interest is deductible. Returns and tax refunds cycle back into the home loan to accelerate repayment.
Where an investment interest deduction is available and the taxpayer's applicable marginal rate including Medicare levy is 47%, $30,000 of deductible interest would reduce tax by up to $14,100 before other interactions. Debt recycling carries borrowing, investment and cash-flow risk and needs separate loan purposes and careful implementation. Investment and personal loan purposes must be kept strictly separate in distinct loan accounts - mixing purposes contaminates deductibility of all interest. Best suited to high-income earners with an owner-occupied property, surplus cash flow, and long-term investment horizon.
Strategy 8: Investment Bonds
Investment bonds are long-term insurance investment products with tax treatment that differs from personally held investments. The commonly discussed 10-year rule, contribution limits and withdrawal treatment have conditions and product-specific details. Compare the after-tax result, fees, liquidity and estate-planning features rather than assuming a fixed saving.
125% rule: Annual contributions must not exceed 125% of the prior year's contribution; breaching this resets the 10-year clock. Best used for long-term goals - education funding, retirement income, estate planning - where capital is not needed within a decade.
Illustrative case study: coordinating several decisions
Composite example - fictitious details. It is not a forecast or a promise of savings.
A high-income professional with employment income, investment property and a family trust may need to coordinate super contributions, trust distributions, debt structure and the timing of asset sales. Each decision should be modelled together because a change in one area can affect the others.
The useful lesson is not a headline dollar saving. It is to test the assumptions, confirm eligibility, document decisions and compare the after-tax outcome against risk, cost, liquidity and long-term goals.
EOFY Checklist: What to Do Before 30 June
- Check concessional contributions (SG + sacrifice + personal deductible) against your $30,000 cap or carry-forward entitlement.
- If your super balance is below $500,000, consider a top-up personal deductible contribution.
- Pass valid trust distribution resolutions before midnight 30 June - a missed or invalid resolution can affect beneficiary entitlements and trustee assessment, depending on the deed and tax rules.
- Crystallise unrealised capital losses to offset gains already realised this year.
- Check assets approaching 12 months - delay a sale if a short wait qualifies you for the 50% CGT discount.
- Prepay investment loan interest (up to 12 months) before 30 June to bring the deduction forward.
- Adjust salary sacrifice for the new financial year from 1 July.
- Lodge PAYG withholding variation by 30 April for early-year cash flow benefit.
- Check bucket company has received a valid distribution resolution and Division 7A minimum repayments are on track.
- Review your investment property depreciation schedule - commission a quantity surveyor if none exists.
Frequently Asked Questions
How do high-income earners minimise tax in Australia?
Some higher-income taxpayers may consider concessional super contributions, salary sacrifice, property deductions, CGT timing, business structures or debt strategies. The legal result depends on the facts, records and current law. Tax planning must not be confused with hiding income, falsifying records or arrangements that fail the integrity rules.
Is it legal to minimise tax in Australia?
Yes. The High Court confirmed in Commissioner of Taxation v Spotless Services Ltd (1996) that taxpayers may arrange their affairs to pay no more tax than the law requires. What is illegal is evasion - hiding income or falsifying records.
How much tax do I pay on $120,000 in Australia?
For a full-year Australian resident with taxable income of $120,000, no other adjustments and the ordinary 2% Medicare levy applying, the income tax calculation is approximately $26,788 plus $2,400 Medicare levy, or $29,188 before offsets, rebates, HELP repayments, Medicare levy surcharge and other personal factors. This is an illustration, not a personal assessment.
When should I see a tax strategist vs a regular accountant?
A regular accountant may focus on reporting what happened, while strategic tax advice considers decisions before they occur. Whether a review is worthwhile depends on your income, investments, entities, goals and complexity.
Next Step
These eight strategies are not exotic schemes - they are legitimate, ATO-compliant tools that work best in combination. The difference between paying 47 cents and 25 - 30 cents on every dollar of investment income compounds to hundreds of thousands of dollars over a working lifetime. If you are earning $120,000 or more and have not reviewed your structure, book a Tax Strategy Session to identify where your biggest savings opportunities lie.
Andrew Romano is a Chartered Accountant and SMSF Specialist based in Sydney. This article provides general information only and does not constitute personal financial advice. Tax laws and ATO guidance can change. Always consult a qualified tax adviser before implementing any strategy.