Did you know that you can earn up to $18,200 in Australia without paying a cent in tax?
This amount, called the tax-free threshold, is a key part of the tax system for Australian residents.
If you’re wondering what it means for you or how to claim it properly, you’re in the right place.
This blog breaks down everything you need to know about the tax-free threshold and the steps to claim it on your tax return.
With years of experience as tax experts, we’ve got the facts to guide you clearly.
What Is The Tax-Free Threshold?
The tax-free threshold is the amount of income you can earn each year before you start paying tax.
For Australian residents, that’s $18,200 in the financial year, which runs from 1 July to 30 June. Earn less than this from all your income sources, and you won’t owe any tax.
Go over it, and you’ll only pay tax on the extra amount. It works out to $350 a week, $700 a fortnight, or $1,517 a month. Tax accountant Melbourne professionals often explain this as your tax-free starting point.
Income here means everything you earn – wages from jobs, business profits, bank interest, or investment gains.
The Australian Taxation Office (ATO) looks at the total to decide if you’re under or over the threshold.
How Do You Claim The Tax-Free Threshold?
Claiming the tax-free threshold happens when you start a job. You fill out a Tax File Number Declaration form from your employer.
On that form, question 9 asks, “Do you want to claim the tax-free threshold from this payer?”
Answer “Yes” to claim it. This tells your employer not to tax the first $18,200 you earn with them.
If you say “No,” they’ll tax all your income at a higher rate from the first dollar.
Got more than one job? You can only claim the threshold for one of them – usually the higher-paying one. Claiming it on multiple jobs means too little tax gets taken out during the year.
When you file your tax return, you’ll owe money to the ATO because your total income gets taxed at progressive rates. Accountants in Melbourne see this mistake often, so pick one job wisely.
What Happens If You Don’t Claim It?
Choosing not to claim the tax-free threshold isn’t common, but it’s an option.
If you tick “No” on the form, your employer withholds tax on every dollar you earn, even below $18,200.
This leaves you with less money in each pay. At tax time, the ATO calculates your total tax based on your yearly income.
If you pay too much during the year, you’ll get a refund. Tax agents can help you decide if this makes sense for your situation.
How Does The Tax-Free Threshold Work With Multiple Income Sources?
Having two or more income sources can lead to a tax problem. When you claim the threshold on your main job, no tax comes out of the first $18,200 there.
But your second job taxes all its income without a threshold.
The catch? The ATO adds up all your earnings at year-end. If the total pushes you into a higher tax bracket, the tax withheld might not cover what you owe.
This leaves you with a bill instead of a refund. Personal accountant advice is key to avoiding this trap.
To fix it, ask one employer to take out extra tax each pay period. Your payroll team can adjust this if you tell them how much more to withhold.
A tax advisor near you can figure out the right amount based on your income.
Common Questions About The Tax-Free Threshold
Why is my refund smaller than last year or why do I have an unexpected tax bill?
This typically occurs when insufficient tax has been withheld throughout the year. It’s particularly common for those with multiple income sources, as each employer calculates withholding without knowledge of your other income.
How can I avoid an unexpected tax bill next year?
You can request additional tax withholding from one of your employers to cover potential shortfalls. Tax accountants in Melbourne professionals recommend consulting with your payroll department to arrange this change.
Alternatively, personal accountant services can calculate the exact amount needed based on your circumstances.
Do I need to lodge a return if I earned less than the tax-free threshold?
If you earned less than $18,200 AND paid tax on this income, you should lodge a return to receive a refund of the tax paid. However, if you earned below the threshold and paid no tax, you may not need to lodge a return, though submitting a Non-Lodgement Advice (NLA) to the ATO is recommended.
What is a Non-Lodgement Advice?
An NLA informs the ATO that you don’t need to lodge a return for a particular year due to your income being below the tax threshold. This prevents you from appearing on their outstanding returns list.
Want To Claim The Tax-Free Threshold Right?
Not sure how to claim the $18,200 tax-free threshold or avoid a tax bill? KPG Taxation makes it simple! Our tax accountants in Melbourne can help you get it right with fast, accurate advice. We promise maximum refunds and easy appointments, serving all of Australia.
