The tax-free threshold is the income level you can earn without paying income tax. In Australia, most residents are eligible for a tax-free threshold, which is the income earned within a financial year.
This means you won’t have any tax withheld from this portion of your income.
The tax-free threshold in Australia is $18,200 for 2024-25. If you’re an Australian resident earning less than this amount, you’re not liable to pay any tax. The tax-free threshold is roughly equivalent to:
- $350 per week
- $700 per fortnight
- $1,517 per month.
Non-residents of Australia are generally not eligible for the tax-free threshold. You can find more information about the tax-free threshold for a particular year on the Australian Taxation Office (ATO) website.
How to Claim the Tax-Free Threshold: Step-by-Step
Claiming the tax-free threshold in Australia can help you reduce the tax you must pay. Here’s a step-by-step guide on how to claim the tax-free threshold.
Confirm Your Eligibility
To claim the tax-free threshold, you must be an Australian resident for tax purposes. If you’re a non-resident, you’re not eligible for the tax-free threshold.
Obtain a Tax File Number (TFN)
If you don’t have a TFN, you need to apply for one. You can do this by completing the online application form on the ATO website or submitting a paper application form. Your TFN is a unique number that identifies you for tax purposes.
Complete the Tax File Number Declaration Form (TFN Declaration)
If you start a new job or change jobs, your employer will provide you with a TFN Declaration form. You need to complete this form to provide your TFN to your employer and claim the tax-free threshold. The TFN Declaration form is available on the ATO website or from your employer.
Provide Accurate Information on the TFN Declaration
When completing the TFN Declaration form, make sure to provide accurate information. This includes your personal details, TFN, and whether you want to claim the tax-free threshold.
Lodge the TFN Declaration with Your Employer
Once you have completed the TFN Declaration form, you need to provide it to your employer. They will use the information to calculate the correct amount of tax to withhold from your pay.
You should submit the form to your employer as soon as possible, preferably before you start working or as soon as you receive it.
Review Your Payslips
After you have claimed the tax-free threshold, it’s important to review your payslips to ensure that the correct amount of tax is being withheld. Your employer should deduct less tax from your pay as you’re entitled to the tax-free threshold.
Update Your TFN Declaration if Needed
If your circumstances change, such as starting a new job, changing your residency status, or wanting to change your tax withholdings, you may need to update your TFN Declaration. You can obtain a new form from your employer or download it from the ATO website.
Lodge an Annual Tax Return
At the end of the financial year (July 1 to June 30), lodge an annual tax return with the ATO. This is where you reconcile your income, deductions, and any tax withheld.
Make sure to include all your income, including from multiple jobs or other sources, and claim any deductions you’re entitled to.
The ATO will calculate your final tax liability, and if you have claimed the tax-free threshold correctly, you should receive a refund or have a reduced tax payable.
Ensure the information you provide on your TFN Declaration is accurate, as providing incorrect information can result in penalties or delays in receiving your tax refund.
Second Jobs and the Tax-Free Threshold: What You Need to Know
In general, you should only claim the tax-free threshold from your primary source of income. If you try to claim the threshold from both jobs, you may end up with a large bill at the end of the financial year.
What is the No Tax-Free Threshold Rate?
If you have multiple employers or income sources and anticipate earning over $18,200 annually, inform your other employers or income providers to withhold taxes at a higher rate. This is known as the “no tax-free threshold” rate.
You can do this by completing a PAYG withholding variation application (available in writing, online, or by email). This helps prevent a tax debt at the end of the year.
How Do You Calculate and Withhold Tax?
Each employer is responsible for calculating and withholding the correct amount of tax from your pay based on the information you provide on your Tax File Number Declaration form (TFN Declaration).
It’s crucial to keep track of your income from all sources, including your primary job and any additional jobs or side gigs. Make sure to report all your income accurately on your annual tax return.
Failure to report your income correctly can result in penalties from the Australian Taxation Office (ATO).
Changing Jobs During the Income Year
If you change jobs during the year, your previous employer will no longer withhold taxes based on the tax-free threshold. However, you can still claim the tax-free threshold from your new employer.
Example: Changing Jobs
Harry recently graduated and secured a full-time job in the public service. He continues to work part-time at a café until his new role begins.
- From July to January, Harry claimed the tax-free threshold from his income at the café.
- When he starts his new job in February, he can claim the tax-free threshold again from his new employer.
Tax Withheld From All Income Sources
When you lodge your tax return, the ATO assesses all the income you earn and the amount of tax withheld. Sometimes the total tax withheld may be more or less than the amount you need to meet your end-of-year tax liability.
- If your income is $18,200 or less, you can claim the tax-free threshold.
- If too much tax is withheld, it may result in a tax refund.
- If too little tax is withheld, you may receive a tax bill to pay the difference.
If you’re withholding too much tax, you can apply for a variation to reduce the amount withheld. Submit a PAYG withholding variation application online, by mail, or via email.
The ATO will recalculate the withholding rate and provide your employers with new instructions. However, only apply if you’re certain about your income and the current withholding is significantly impacting your take-home pay.
Conversely, if you anticipate underpaying taxes, you can request that your employers increase the amount of tax withheld by submitting a PAYG withholding variation application.
Navigating the Tax-Free Threshold as an Aussie Expat
Navigating the tax-free threshold in Australia as an expat or foreign investor involves considering your tax residency status.
- Whether you qualify as a resident or non-resident for tax purposes determines your eligibility for the tax-free threshold.
- Double taxation agreements between Australia and the overseas country you’re currently residing in may impact how the threshold applies to you.
- Exemptions and concessions, such as those for temporary residents, can affect your tax liability. Investment income and capital gains may have different tax obligations based on your residency status.
- Compliance with Australian tax laws, including reporting requirements, is essential for expats and foreign investors.
Claim Tax-Free Threshold: Yes or No? The Factors to Consider
When deciding whether or not to claim the tax-free threshold, there are a few things to keep in mind. You should consider your expected annual income, whether you have more than one job, and your resident status for tax purposes.
Here are some considerations to help you make an informed decision:
Income Level
If your annual income is below the Australian tax-free threshold, which is $18,200 for 2024-2025, it makes sense to claim the tax-free threshold. Doing so ensures that you don’t have any income tax deducted from your pay.
Multiple Jobs
If you have multiple jobs, it’s important to note that you can only claim the tax-free threshold with one employer at a time.
If you claim the tax-free threshold with multiple employers, it can result in under-withholding and a potential tax debt at the end of the financial year.
Tax Residency Status
Your tax residency status determines your eligibility for the tax-free threshold. Australian residents for tax purposes are generally entitled to claim the tax-free threshold.
Non-residents, on the other hand, are not eligible for the tax-free threshold and will have tax withheld from their pay at a higher rate.
Deductions and Offsets
Consider any deductions and offsets you’re eligible to claim. If you have significant deductions or offsets that reduce your taxable income below the Australian tax-free threshold, it may be more beneficial not to claim the tax-free threshold.
This allows your employer to withhold more tax, increasing the likelihood of a tax refund at the end of the financial year.
Financial Circumstances
Evaluate your overall financial situation, including other sources of income, such as rental properties or investments. If your income exceeds the tax-free threshold from these additional sources, it may be advantageous not to claim tax-free threshold to ensure sufficient tax is withheld throughout the year.
Future Tax Obligations
Consider any potential tax obligations you may have in the future. For example, if you anticipate earning additional income later in the financial year that will exceed the tax-free threshold, not claiming the tax-free threshold from the start can help avoid a large tax liability at year-end.
What Happens if I Don’t Claim the Tax-Free Threshold?
If you choose not to claim the Australian tax-free threshold, you’ll be taxed at the full rate from dollar one.
While this may lead to a bigger refund at the end of the financial year, it also means less take-home pay throughout the year.
Understanding the tax-free threshold in Australia can feel like a daunting task, especially for expats and foreign investors. However, with the right knowledge and resources, it’s a concept that you can easily grasp.
Let Australian Tax Specialists Guide You
Navigating Australian tax as an expat can be complex, especially with nuances like the tax-free threshold. Understanding eligibility and how to claim it can be confusing.
Our team of Australian tax specialists can provide expert guidance, ensuring you understand your tax obligations and maximise your deductions. We simplify the process, helping you avoid costly errors and ensuring you meet all compliance requirements.
Get in touch with our team of expert tax advisors. We make your Australian taxes effortless, saving you time and potential penalties.
FAQs about the Tax-Free Threshold in Australia
What is a tax-free threshold?
The tax-free threshold is the amount of income you can earn each year before you have to start paying tax.
For Australian residents, the tax-free threshold for the 2024-2025 financial year is $18,200. This means that if your taxable income is $18,200 or less, you’ll not have to pay any income tax.
Non-residents of Australia are generally not eligible for the tax-free threshold. They are taxed on their Australian-sourced income at a flat rate.
What is the tax-free threshold in Australia for 2024-25?
The tax-free threshold in Australia for the 2024-2025 financial year is $18,200. This means that for Australian residents, if your taxable income is $18,200 or less, you’ll not have to pay any income tax.
Non-residents of Australia are generally not eligible for the tax-free threshold. They are taxed on their Australian-sourced income at a flat rate.
How do I claim the tax-free threshold?
You can claim the tax-free threshold by correctly filling out the Tax File Number Declaration form with your employer.
Can I claim the tax-free threshold on a second job?
You generally should only claim the tax-free threshold from one employer, typically your highest-paying job.
Claiming it from multiple jobs can lead to underpayment of tax throughout the year, resulting in a potential tax debt at the end of the financial year.
If you have multiple jobs and your combined income exceeds the tax-free threshold, you may need to adjust your withholding declarations to ensure enough tax is withheld.
What happens if I don't claim the tax-free threshold?
If you don’t claim the tax-free threshold, your employer will withhold tax at a higher rate.
This means you’ll have less take-home pay. However, if you’re eligible for the tax-free threshold, you’ll usually get a tax refund when you file your tax return at the end of the financial year.
Do I say yes or no to the tax-free threshold?
If you have only one job, generally, it’s good to say “yes” to claiming the tax-free threshold on your TFN declaration for your primary employer. This ensures that no tax is withheld from your income up to the threshold amount ($18,200).
If you have multiple jobs, you should typically only claim the tax-free threshold with your primary employer (the one where you earn the most). Claiming it with multiple employers can lead to under-withholding of tax and potentially a tax debt at the end of the financial year.
How much tax will I get back if I earn $60,000?
The amount of tax you get back depends on various factors, including your income, deductions, and other offsets. To get an accurate estimate, you can use the ATO’s tax calculator.
Do I claim the threshold for a second job?
No. You generally only claim the tax-free threshold once, usually from your highest-paying employer.
Claiming it on both jobs could result in you paying less tax upfront but owing more at tax time.
How much money can you earn before paying tax in Australia?
As a resident, you can earn up to $18,200 in Australia without paying income tax. This is the tax-free threshold. This doesn’t apply to non-residents for tax purposes.
Should I claim tax-free threshold in Australia?
Yes, you should generally claim the tax-free threshold if you’re eligible. Here’s why.
- Reduces Withholding: Claiming the threshold tells your employer to withhold less tax from your paychecks. This means you’ll have more money in your pocket throughout the year.
- Avoids Underpayment: If you don’t claim it and your income exceeds the threshold, you might owe tax at the end of the year.
- Potential Refund: If you’re eligible and don’t owe any tax, claiming the threshold can result in a tax refund when you file your return
Do I get all my tax back if I earn under $18,000?
You may be eligible for a full tax refund if your income is under the tax-free threshold and you have no other tax obligations. However, it’s always best to lodge a tax return to ensure you receive any applicable refunds or credits.
Do I need to lodge a tax return if I earned less than the tax-free threshold?
Generally, no. If you earned less than the tax-free threshold ($18,200 for the 2022-2023 financial year) and did not pay any tax on your income, you likely do not need to lodge a tax return.
However, there are exceptions: You may still need to lodge a return if you:
- Paid tax on your income, even if you earned below the threshold.
- Are entitled to the private health insurance rebate.
- Had reportable fringe benefits or employer superannuation contributions.
- Made a capital loss or can claim a loss from a previous year.
- Had exempt foreign employment income plus $1 or more of other income.
- Are required to lodge by another government body (like Centrelink).
What is a Non-Lodgement Advice?
A Non-Lodgement Advice (NLA) is a document you submit to the Australian Tax Office (ATO) to inform them that you do not need to lodge a tax return because your income was below the tax-free threshold and you paid no tax.
It’s important to submit an NLA if you meet these criteria. Failing to do so could result in the ATO assuming you have an outstanding return.
