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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.

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