The Tax Deduction Lie:
What You Really Need to Know
Lately, we’ve noticed a recurring theme in conversations with clients—the obsession with chasing tax deductions. So it’s time to set the record straight and bust a few myths.
Myth 1:
“If I claim $100 in deductions, I get $100 tax back.”
Not quite. In reality, you only get back a portion of what you spend—at most $47 per $100, and that’s only if you’re earning over $190,000. For most people, the return is even less, depending on your marginal tax rate (typically 22%–32% of the spend back in tax).
So, unless the expense is something you were going to spend the money on anyway—or it helps generate future income or build an asset—you’re effectively wasting the rest.
Cashflow is king. Sometimes, the smartest move is simply to pay the tax and keep the surplus cash. After all, paying tax on $100 and keeping $53 is better than spending $100 just to get $47 back.
Myth 2:
“Deductions are always good.”
Only if they’re strategic. Deductions should relate to necessary business expenses, income generation, or asset building.
In the past, banks and prospective business buyers might have added back some deductions when assessing your profitability. Today? They look straight to your tax return. We’ve seen clients miss out on dream homes or a successful business sale because their “tax minimisation strategies” made them look less profitable on paper.
Bottom line: Don’t sacrifice long-term goals for short-term tax savings.
Myth 3:
“Deferring tax is a win.”
It depends. Instead of focusing on deferral, ask yourself: Why did I go into business?
If your goals include building wealth, reducing debt or gaining freedom, then paying a bit more tax now might actually help you get there faster. Deferring tax can also create stress—especially if you’re unsure how you’ll pay it later (i.e. the funds aren’t set aside for the tax deferred).
Take the popular $20,000 instant asset write-off. It’s not a bonus deduction—it’s just a timing benefit.
Make decisions based on your business and life goals—not just tax.
Myth 4:
“If I go over a tax bracket limit, I lose more money overall.”
This one’s persistent—and completely false.
Tax brackets are marginal. That means you only pay the higher rate of tax on the income above the threshold. For example, if you earn $1 million, you still pay nothing on the first $18,200, then 16% on the next slice, and so on.
Think about it this way: Do CEOs of listed companies ask to cap their salary at $135,000 to avoid a higher tax bracket? Of course not. They want more income—even if it means more tax.
You should too. Focus on what you need to fund your lifestyle and what you’re worth—not where a tax bracket ends. Instead, can you employ strategies with the extra cashflow that can build overall wealth and provide some tax benefits such as negatively geared shares/property.
Myth 5: “Companies save tax.”
Sometimes. But mostly, they defer tax, not eliminate it.
Yes, companies pay 25% tax (active business), which sounds great if you’re personally taxed at 37% or more. But when you take money out for personal use—holidays, school fees, investments—you’ll pay the top-up tax to bring it up to your personal rate. Note: Certain professions are also denied any tax benefits where they operate through a company (Personal Services Income Legislation).
So, if your goal is to use the money personally, you will still face individual tax rates eventually.
That said, structures like companies and trusts offer other benefits such as asset protection, flexibility, suitability for unrelated investors, and funding for growth. With good planning, they can be powerful tools—but they’re not magic tax erasers.
So, what’s the smart approach?
At Holmans, we work hard to get our clients the best deductions—but only when they make sense. We don’t encourage spending just to get a deduction. Instead, we focus on strategic tax minimisation that aligns with your long-term goals.
Final Thought: Chase profits and cashflow, not deductions.
More profit means more tax—but it also means more money in your pocket, better lifestyle options, stronger borrowing power, and less stress.
And who doesn’t want that?
Disclaimer: This article contains general information only. Regrettably, no responsibility can be accepted for errors, omissions or possible misleading statements or for any action taken as a result of any material in this guide. It is not designed to be a substitute for professional advice, as such a brief guide cannot hope to cover all circumstances and conditions applying to the law as it relates to these items.
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Holmans Noosa: (07) 5430 7600 or email info@holmans.com.au
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