Contents
- What is the tax free threshold in Australia?
- Should I claim the tax free threshold?
- What happens if I don’t claim the tax free threshold?
- How to claim the tax free threshold
- Part year tax free threshold
- FAQs
What is the tax free threshold in Australia?
The tax free threshold is the first $18,200 of income earned in an income year, which is exempt from tax.
If you are an Australian resident for tax purposes, you are eligible to claim the tax free threshold. If you are not an Australian resident for tax purposes, you cannot claim the tax free threshold. If you are resident for part of an income year, see the “Part year tax free threshold” section below.
If you choose to claim the tax free threshold, you will not pay tax if your income is below $18,200. Your employer will withhold tax if you earn above $18,200.
See these related articles:
- Individual Income Tax Rates for tax free thresholds and tax rates for Australian residents, Foreign residents, and visitors on Working Holiday visas.
- Tax Refund – Tax Payable for a simple explanation of how tax refunds and tax bills happen.
- Tax Offset for how the Low Income Tax Offset effectively increases the tax free threshold if you earn less than $66,667.
Should I claim the tax free threshold?
If you only have one employer in an income year, yes you should claim the tax free threshold. If you don’t, you will receive less money in your bank account each pay period. You can claim back any excess tax withheld by an employer when you lodge your tax return, but most people would rather receive their income as they earn it.
If you have multiple employers in an income year who each pay you more than $18,200, you should only claim the tax free threshold for the employer who pays you the most income.
If you claim the tax free threshold for multiple employers in an income year (assuming each is paying you more than $18,200), each employer will not withhold tax up to the first $18,200 of income you earn. The problem with that is you only get one $18,200 tax free threshold for each income year. You do not get multiple $18,200 tax free thresholds. So, if you have multiple employers each not withholding tax for $18,200 of income, you will be “under taxed” and will end up having to pay the shortfall of tax when you lodge your income tax return.
In cases where the total tax withheld is insufficient to cover your tax liability for the income year, you can request one or more employers to increase the tax withholding amount.
If you have multiple employers in an income year and your total income does not exceed $18,200, it would be acceptable to claim the tax free threshold for each employer, as you would not be liable for any income tax.
What happens if I don't claim the tax free threshold?
If you don’t claim the tax free threshold, your employer will withold tax from the first $18,200 of income you earn. This means you will receive less income during the income year.
However, you will receive a refund of any excess tax witheld when you lodge your income tax return.
If you do not want to wait until you lodge your income tax return, you can apply to reduce the tax withheld from your payments. This requires submitting a PAYG withholding variation application to the Australian Taxation Office (ATO).
Tthe ATO will then calculate the revised withholding amount and provide instructions to your employer accordingly.
How to claim the tax free threshold
To claim the tax free threshold, you must indicate this on the tax file number (TFN) declaration provided by your employer.
Part year tax free threshold
Arriving Australia
You 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.
Departing Australia
If you leave Australia with the intention of residing overseas indefinitely, you will be classed as an Australian tax resident only up to the date of your departure.
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.
FAQs
What is the tax free threshold 2023?
The Tax Free Threshold for the 2023 income year (1 July 2022 to 30 June 2023) is $18,200.
What is the tax free threshold 2024?
The Tax Free Threshold for the 2024 income year (1 July 2023 to 30 June 2024) is $18,200.
What happens if I claim the tax free threshold on 2 jobs?
See the section “Should I claim the tax free threshold?” above. If you claim the tax free threshold on 2 jobs and you earn $18,200 or more from each job, you will be effectively “undertaxed” by the 2nd employer, and you will have to pay the tax shortfall when you lodge your income tax return.
This article is general information only and does not provide advice to address your personal circumstances. To make an informed decision you should contact an appropriately qualified professional.