Income tax in Australia is taxed at a progressive rate. A progressive tax means that a taxpayer pays more tax as their taxable income increases. In Australia, the financial year starts on 1 July and ends on 30 June of the following year. There is a tax-free threshold to support residential individuals on a low income whereby below a certain amount, income isn’t taxed. In the financial year of 2015 to 2016, Australia’s tax-free threshold is $18,200.

A different tax regime applies to individuals under 18. If a minor earns between $1 and $417, there is no tax on their income. Between $417 and $1307, minors are taxed 65 cents for every dollar over $416. This article sets out how to claim the tax-free threshold in Australia.

Low Income Tax Offset

The low-income tax offset (LITO) may also apply to residents who fall under the tax-free threshold. The LITO is a tax rebate. In the financial year of 2015 to 2016, the LITO is $445. Unlike the tax-free threshold, the low-income tax offset can be claimed until the individual’s taxable income reaches $37,000 in the financial year. For every dollar above $37,000, the low-income tax offset is reduced by 1.5 cents. At $66,667, the tax offset cuts off. The Australian Tax Office calculates this offset every time a tax return is lodged.

Claiming the Tax-Free Threshold

As a resident, the first $18,200 of income is not taxed. Your employer is required to issue you with a tax file number declaration form at the beginning of every job. If you claim welfare support payments through Centrelink, the government agency will also issue you with a tax file number declaration form.

To claim the tax-free threshold, you must advise your employer or Centrelink within 28 days of receiving the form that you want to claim the tax-free threshold for the tax-free threshold question. You can apply for the tax-free threshold if you do not earn sufficient income to pay tax and you are under 18 years old.

If you don’t have or have forgotten your tax file number, you must indicate on the tax file number form that you are making an application or enquiry to obtain your tax file number. This will mean your payer will tax you at the normal rates for 28 days.

Medicare Levy

The tax on income does not include a Medicare levy. This levy was increased to 2% (from 1.5%) on 1 July 2015. Most Australians are required to pay for the levy to support the public health system. The Australian Tax Office calculates the 2% of taxable income. If your income is less than $20,896 for the taxable year, you are not required to pay the Medicare levy. For seniors and pensioners, the taxable income threshold for the Medicare levy is $33,044. If you earn between $20,896 and $26,121, you are only required to pay part of the Medicare levy.


If you have any questions about the tax-free threshold or an employment law matter, get in touch with LegalVision’s taxation lawyers on 1300 544 755 or fill out the form on this page. 

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Anthony Lieu

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