Tax Free Threshold

How Does the Tax Free Threshold Work?

For Australian residents, currently the first $18,200 of your annual income is not subject to taxation by the Federal Government. This is known as the tax free threshold and equates to $350 a week. If you earn less than this amount, then you will pay no tax at all.

How do I claim the tax free threshold in Australia?

There are two ways. Firstly, you can claim it at the end of the financial year when you lodge your tax return. Any tax that has been withheld on income under the tax free threshold will be returned to you.

Alternatively, you can ask your employer to withhold less money from your pay during the year. The easiest way to do this is on the tax file number declaration form which you will be asked to fill out when you start work with your employer. Simply answer yes to the question: “Do you want to claim the tax free threshold from this payer?”.

What if I have income from two different payers?

This usually occurs if you have two or more different jobs. It can also happen if you have a single job while also claiming a government allowance or taxable pension.

If you have income from two different payers, it is generally expected that you will claim the tax free threshold from the payer that gives you the highest wage or salary. The other payer will be required to withhold tax at the higher rate, under the assumption that you will not receive the tax free threshold from that income.

This is the best way to ensure that you don’t end the financial year with a tax debt that you will have to repay.

If you expect that your entire income is going to be under $18,200, you are allowed to claim the tax free threshold from each of them. However, you need to keep an eye on this. If your income goes over $18,200 by the end of the financial year, you will need to inform one of your payers and stop claiming the tax free threshold from them.

What if I am not a resident of Australia for the entire year?

This gets a little complicated and you may want to seek the help of an accountant or tax lawyer.

Usually, if you have been a resident of Australia throughout part of the financial year, you are entitled to a tax free threshold of at least $13,464. How much of the remaining $4,736 you can claim depends on how long you were living in Australia.

For instance, if you were a resident of Australia for six months, you would be entitled to a tax free threshold of $15,832.

For personalised tax law advice, book an appointment with a tax lawyer.

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