The tax free threshold in Australia refers to the first $18,200 of income earned in an income year, which is exempt from taxation. If you are an Australian resident for tax purposes, you are eligible to claim the tax free threshold, and as you do that, the tax withheld from your income is reduced.
To claim the tax free threshold, you must indicate your preference on the tax file number (TFN) declaration form provided to your payer, such as an employer or government agency.
If you choose to claim the tax free threshold, you will not pay tax if your income is below $18,200, and your payer will withhold tax once you earn above this threshold.
The table below shows the tax rates and thresholds for the tax year 2023-2024:
|Taxable Income||Tax Payable|
|$0 – $18,200||Nil|
|$18,201 – $45,000||19c for each $1 over $18,200|
|$45,001 – $120,000||$5,092 plus 32.5c for each $1 over $45,000|
|$120,001 – $180,000||$29,467 plus 37c for each $1 over $120,000|
|$180,001 and over||$51,667 plus 45c for each $1 over $180,000|
Please note that the tax rates provided in the table above do not take into account the additional Medicare levy of 2% that may apply to taxable income.
Determining When to Claim
If you have multiple payers simultaneously, typically, you can only claim the tax free threshold from one payer. Usually, you claim it from the payer who offers you the highest salary or wage.
However, there are circumstances where you may have income from multiple sources, such as having multiple jobs, a part-time job with a taxable pension or government allowance, or working as a contractor under an Australian Business Number (ABN).
In such cases, informing your other payers to withhold tax at a higher rate is crucial to avoid potential tax debts at the end of the income year.
Income Scenarios and Adjustments
1. Income of $18,200 or Less
If you are certain that the combined income you will receive from all sources will not exceed $18,200, you are eligible to claim the tax free threshold individually from each payer.
However, if your income later increases beyond $18,200, you must provide a withholding declaration to one of your employers. This declaration notifies them that you no longer wish to claim the tax free threshold from that payer.
2. Income Over $18,200 with Excessive Tax Withheld
If your income exceeds $18,200, and too much tax has been withheld, you can apply to reduce the tax withheld from your payments. This requires completing and submitting a PAYG withholding variation application to the tax authorities.
Upon receiving your application, the tax authorities will calculate the revised withholding amount and provide instructions to your payers accordingly.
Insufficient Tax Withheld
In cases where the total tax withheld is insufficient to cover your tax liability for the income year, you can request one or more payers to increase the withholding amount. This can be done through a written request, in the form of an email, a paper document, or an online form.
Part Year Residents
You will receive a part-year tax free threshold if you are an Australian resident for tax purposes for only part of the year. This threshold comprises a flat amount of $13,464 and an additional $4,736 that is apportioned based on the number of months you were in Australia during the income year, including the month of arrival.
Tax free Threshold for Individuals Moving Overseas from Australia
If you are planning to leave Australia with the intention of residing overseas, your tax free threshold for the year will be lower than the threshold available to most taxpayers who are Australian residents for the full year.
In this scenario, you are entitled to a tax free threshold of $13,464 plus an adjustment for the number of months you were an Australian resident for tax purposes, including the month you left.
The adjustment is calculated as follows:
Divide $4,736 by 12, then multiply it by the number of months you were an Australian resident for tax purposes, counting the month you departed.
Full-year non residents, for tax purposes, cannot claim the tax free threshold. As a non-resident, you must pay tax on all income earned in Australia.
The following table shows the tax rates and thresholds applicable to foreign residents for the 2023–24 tax year.
|Taxable Income||Tax on this Income|
|$0 – $120,000||32.5c for each $1|
|$120,001 – $180,000||$39,000 plus 37c for each $1 over $120,000|
|$180,001 and over||$61,200 plus 45c for each $1 over $180,000|
This article is for general information only. It does not make recommendations nor does it provide advice to address your personal circumstances. To make an informed decision, always contact a registered tax professional.