The tax-free threshold is the amount of income that Australian residents can earn without having to pay any income tax.

This threshold is set by the Australian Taxation Office (ATO) and applies to individuals who are Australian residents for tax purposes. For the current financial year, the tax-free threshold is $18,200. Find out more here in this article.

How Does The Tax-Free Threshold Work?

The tax-free threshold allows you to earn up to $18,200 without paying tax. Any income earned beyond this amount will be taxed according to the income tax rates set by the ATO. 

This benefit is automatically applied by your employer, so you don’t need to do anything unless your income situation changes. If you’re self-employed or a contractor, you need to account for the tax-free threshold when filing your tax return.

  • The first $18,200 of your annual income is tax-free.
  • Any income over $18,200 will be taxed based on the relevant tax brackets.
  • If you earn less than $18,200, you will not pay tax at all.

Who Can Claim The Tax-Free Threshold?

The tax-free threshold is available to Australian residents for tax purposes. To be eligible, you need to meet specific residency requirements outlined by the ATO. Non-residents are not eligible to claim the tax-free threshold.

Eligibility Criteria

  • You must be an Australian resident for tax purposes.
  • You must be earning taxable income.
  • Non-residents cannot claim the tax-free threshold.

If you’re unsure whether you’re an Australian resident for tax purposes, you can check with the ATO or consult a tax professional.

How To Claim The Tax-Free Threshold

Claiming the tax-free threshold is a straightforward process. You can claim it by filling out a Tax File Number (TFN) declaration form when you start a new job or when you first register with the ATO.

Step 1: Check Your Eligibility

Before you claim the tax-free threshold, ensure that you’re eligible by confirming your Australian residency status for tax purposes.

  • Verify if you’re an Australian resident for tax purposes through the ATO website or consult a tax advisor if you’re unsure.
  • You must not be a non-resident for tax purposes to claim the threshold.

Step 2: Complete A Tax File Number (TFN) Declaration

To claim the tax-free threshold, you will need to complete a TFN declaration form. This form is used to notify your employer that you wish to claim the tax-free threshold.

  • The TFN declaration form is available on the ATO website or can be obtained from your employer.
  • On the form, you’ll need to indicate that you want to claim the tax-free threshold.

You can complete the form online through your myGov account or submit a paper version to your employer.

Step 3: Submit The TFN Declaration To Your Employer

Once you’ve completed the TFN declaration form, submit it to your employer. Your employer will then apply the tax-free threshold to your income and adjust your tax deductions accordingly.

  • Submit the form as soon as possible after starting a new job to ensure the correct amount of tax is deducted.
  • If you’re self-employed, you must ensure the ATO applies the threshold when processing your tax return.

Step 4: Keep Track Of Your Income

It’s important to keep track of your income throughout the year. If you work more than one job, you can only claim the tax-free threshold on one job, generally on the one where you earn the most income.

  • If you have multiple jobs, choose the job where you earn the most to claim the threshold.
  • If you claim the tax-free threshold on more than one job, you may end up underpaying tax.

If you’re unsure how to handle your income across multiple jobs, consider consulting with a tax professional.

Step 5: Adjust Your Tax Withholding If Necessary

If you start a new job and forget to claim the tax-free threshold, you can correct it by submitting the TFN declaration form to your employer or directly to the ATO if you are self-employed.

  • You can amend your claim at any time during the year.
  • The ATO will adjust your tax deductions and potentially issue a refund if you’ve overpaid tax.

By adjusting your tax withholding promptly, you avoid paying unnecessary tax throughout the year and reduce the risk of a large tax bill at the end of the financial year.

Conclusion

The tax-free threshold allows Australian residents to earn up to $18,200 without paying tax. To claim it, you need to complete a TFN declaration form and submit it to your employer. If you have more than one job, you should claim the tax-free threshold on the highest-paying job to ensure you’re not overpaying tax.

Frequently Asked Questions

Can I Claim The Tax-Free Threshold If I Am A Non-Resident?

No, non-residents cannot claim the tax-free threshold. Only Australian residents for tax purposes are eligible to claim it.

What Happens If I Don’t Claim The Tax-Free Threshold?

If you don’t claim the tax-free threshold, your employer will deduct tax from all of your income without applying the threshold. This means you may pay more tax than necessary. However, you can claim it later by submitting a Tax File Number declaration.

Can I Claim The Tax-Free Threshold If I Have More Than One Job?

You can only claim the tax-free threshold on one job. It is advisable to claim it on your highest-paying job to avoid paying too much tax.