The tax free threshold is an amount a person (who must be an Australian resident for tax purposes) can choose to claim to reduce the amount that is taken out of their gross pay up to a certain amount per year.
The current tax free threshold amount that can be claimed as at the 2017-2018 financial year is $18,200.
What if I have two jobs?
It is usually advised that if you have two jobs – then you only claim the tax free threshold from one employer to make sure that you are having the right amount of tax deducted from your gross pay so you don’t need to make an overpayment to the tax department at tax time.
However, if you are certain that you will be earning under the threshold even with two jobs, you can claim it with both employers. It is important to keep an eye on your taxable income and when it is getting close to the amount you can claim then it is suggested to change to only claiming it with one employer.
What if too much tax is withheld?
If you have earned over the amount of $18,200 and have tax taken out of your earnings but it is too much for the amount you have earned you can request to have an adjustment made so you pay less tax throughout the year or you can make a claim at tax time and receive a tax refund cheque.
What if too little tax is withheld?
Alternatively, if you have earned over the amount of $18,200 throughout the year and the right amount of tax has not been taken out- you may receive a tax bill that is to be paid in October each year. If you find you have to pay tax to the Australian Tax Office, it may be advisable to increase the amount of tax taken out of each pay so that you wouldn’t have to pay a bill the following year.
When is the tax free threshold reduced?
If you have only been an Australian resident for a part of the year, you are only entitled to a part tax free threshold. This is done by using a pro rata approach. You have a minimum tax free threshold of $13,464. The remaining amount up to $18,200 is determined by a pro rata approach based on the number of months during which you have resided in Australia.
Are foreign residents entitled to the tax free threshold?
Non-Australian residents are not entitled to claim the tax free threshold. This means that you pay tax on every dollar that you earn. However, you may be entitled to other tax concessions depending on your circumstances.
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