Skip to content

What is the Tax-Free Threshold in Australia?

Whether you are an employee or an employer, it is important to understand the tax-free threshold in Australia. The tax-free threshold is the dollar amount of an individual’s income that is exempt from income tax. This article is a guide to: 

  • what the threshold is; 
  • how to claim it; and 
  • what the eligibility requirements are.

What Is Australia’s Tax-Free Threshold?

If you are an Australian resident for tax purposes, you can earn up to $18,200 in a financial year (‘income year’) without having to pay any income tax ($18,200 is the equivalent of earning $700 a fortnight). This is known as the ‘tax-free threshold’. It is set out in Australia’s progressive income tax rates below:

Taxable Income
Tax Payable
$1 – $18,200 Nil
$18,201 – $37,000 Nil plus 19% of excess over $18,200
$37,001 – $90,000 $3,572 plus 32.5% of excess over $37,000
$90,001 – $180,000 $20,797 plus 37% of excess over $90,000
$180,001 and over $54,097 plus 45% of excess over $180,000

How Do I Claim the Tax-Free Threshold?

When you start a job with a new employer or apply for a new payment with Centrelink, you will be given a tax file number declaration form. If you answer ‘yes’ to question eight (‘Do you want to claim the tax-free threshold from this payer?’), your employer will not withhold tax from your first $18,200 of income.

Even if you do not actively claim the tax-free threshold on your tax file number declaration form, you will still be entitled to a refund from the ATO at the end of the income year for any income tax that was withheld from your first $18,2000 of income. 

If you have two or more payers in an income year, make sure your total income from all sources will not exceed $18,200 before claiming the tax-free threshold from each payer. If it will exceed the threshold, only claim the tax-free threshold with one payer. Otherwise, you will receive a tax bill from the ATO at the end of the income year.

How Do I Know if I Am an Australian Resident for Tax Purposes?

Being an Australian resident for tax purposes is not the same as being a resident for immigration purposes. You are an Australian resident for tax purposes if you ‘reside’ in Australia. The ATO will determine whether you reside in Australia based on a range of factors

If you are a non-resident for tax purposes or a working-holiday maker, you are not entitled to the tax-free threshold.

What if I Am Only a Tax Resident for Part of the Year?

If you are only a tax resident for part of the income year, you can claim the tax-free threshold for the number of months you are a resident. This includes the month that you became, or stopped being, a tax resident. If this applies to you, you can figure out your tax-free threshold using the following formula: $13,464 + [$4,736 x (months you were a tax resident ÷ 12)].

Example

Stefano arrives in Australia in December, from which date he is a resident for tax purposes. His tax free threshold for the remainder of the income year is $13,464 + [$4,736 x (7 ÷ 12)] = $16,226.67

Key Takeaways

In Australia, the tax-free threshold is $18,200 per financial year. You claim the tax-free threshold when you complete the Tax File Number Declaration at the start of any new employment. You are only entitled to the tax-free threshold if you are an Australian resident and you should only claim the tax-free threshold with one payer (unless your total income from all payers is going to be less than the threshold). If you have any questions about the tax-free threshold, either as an employer or employee, contact LegalVision’s taxation lawyers today on 1300 544 755 or fill out the form on this page.

Register for our free webinars

ACCC Merger Reforms: Key Takeaways for Executives and Legal Counsel

Online
Understand how the ACCC’s merger reforms impact your legal strategy. Register for our free webinar.
Register Now

Ask an Employment Lawyer: Contracts, Performance and Navigating Dismissals

Online
Ask an employment lawyer your contract, performance and dismissal questions in our free webinar. Register today.
Register Now

Stop Chasing Unpaid Invoices: Payment Terms That Actually Work

Online
Stop chasing late payments with stronger terms and protections. Register for our free webinar.
Register Now

Managing Psychosocial Risks: Employer and Legal Counsel Responsibilities

Online
Protect your business by managing workplace psychosocial risks. Register for our free webinar.
Register Now
See more webinars >
Paul Cooper

Paul Cooper

Read all articles by Paul

About LegalVision

LegalVision is an innovative commercial law firm that provides businesses with affordable, unlimited and ongoing legal assistance through our membership. We operate in Australia, the United Kingdom and New Zealand.

Learn more

We’re an award-winning law firm

  • Award

    2025 Future of Legal Services Innovation Finalist - Legal Innovation Awards

  • Award

    2025 Employer of Choice - Australasian Lawyer

  • Award

    2024 Law Company of the Year Finalist - The Lawyer Awards

  • Award

    2024 Law Firm of the Year Finalist - Modern Law Private Client Awards

  • Award

    2022 Law Firm of the Year - Australasian Law Awards