What is the Tax-Free Threshold?

What is the Tax-Free Threshold?

What is the tax-free threshold? 

The tax-free threshold is the amount of income a person can earn before they are required to start paying tax. For Australian taxpayers, the tax-free threshold currently sits as $18,200 of annual income. This equates to $350 per week, $700 per fortnight and $1,517 per month. 

Taxpayers can claim the tax-free threshold in order to minimise the amount of tax that is withheld during the year.


Who can claim the threshold? 

The tax-free threshold is only available to Australian residents for tax purposes. If you aren’t an Australian resident, you will be required to pay tax on every dollar you earn while working in Australia. 

Many people may become a resident for tax purposes part way through the year or leave part way through the year with the intention of remaining outside of Australia. In these instances, the threshold would be at least $13,464. The remainder of the standard threshold is then prorated relative to the number of months worked in Australia.

This can be calculated using the following equation:

$13,464 + $4,736 (the remainder of the standard tax-free threshold) x (the number of months worked in Australia as a resident ÷ 12).


How do I claim the tax-free threshold? 

Claiming is simple. When you start employment, your employer will provide you with a Tax File Number Declaration form to complete. To claim, all you need to do is check ‘yes’ to questions number 8, “Do you want to claim the tax-free threshold from this payer.” 

Once you earn more income than the threshold, you will begin to pay tax on the excess.


What happens if I have 2 employers?

Many Australian taxpayers have more than one income. This may be due to having multiple jobs or from receiving a taxable government allowance such as JobSeeker. 

In these instances, it is usually requested that you only claim the threshold through the payer who you generally receive the highest income from.

This means that the second payer will withhold tax at a higher rate and for every dollar you earn. This also applies for any additional sources of income. By doing this, you minimise the risk of accruing debt with the ATO.

In some cases, the total amount of tax withheld from all your sources of income will be more or less than what you are actually required to pay. When this happens, the amounts withheld will be credited to you when you submit your personal tax return. 

If you’re unsure about whether you should be receiving the tax-free threshold or how to maximise your tax return, get in touch with our team of tax specialists – we’d love to help. 


Learn more about Simmons Livingstone Tax Services for Individuals, Companies & Trusts, Sole Traders & Partnerships.

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