What is the tax free threshold?
If you’re an Australian resident for tax purposes, the first $18,200 of your yearly income isn’t taxed. This is called the tax-free threshold. You can claim the tax-free threshold to reduce the amount of tax that is withheld from your pay during the year.
When you start a job, your payer (employer) will give you a Tax file number declaration to complete. Centrelink is also a payer and they will give you this form if you apply for their payments.
You tell your payer you want to claim the tax-free threshold by answering Yes at question 8 ‘Do you want to claim the tax-free threshold from this payer?’
The $18,200 tax-free threshold is equivalent to:
- $350 a week
- $700 a fortnight
- $1,517 a month.
When your taxable income exceeds the tax-free threshold you pay tax on the excess.
How do I claim the tax-free threshold?
As outlined on the ATO website, the good news is that claiming the tax-free threshold should be simple. Whenever you start a new job or apply for a new Centrelink payment you’ll be given a ‘tax file number declaration’ form to complete, and all you have to do is answer ‘Yes’ to question 8 – ‘Do you want to claim the tax-free threshold from this payer?’
Taxpayers with two or more income sources – beware of a possible tax trap caused by the tax free threshold.
Some taxpayers with two or more jobs or other taxable income sources may be caught in an unintentional tax trap as a result of the tax free threshold.
The problem occurs even if the taxpayer and the employers do the right thing – as determined by the Australian Taxation Office (ATO) individual income tax rates. The problem is caused as the first job attracts the tax-free threshold while second and subsequent jobs are undertaxed. This means that taxpayers can be left with a tax bill at the end of the financial year.
COMMON TAX FREE THRESHOLD QUESTIONS
How much tax do I pay if I don't claim the tax free threshold?
Is it better to claim the tax free threshold?
Should I say yes to tax free threshold?
How much can you earn on a second job before paying tax?
What is your tax file number (TFN)?
We and your payer are authorised by the Taxation Administration Act 1953 to request your tax file number (TFN). It is not an offence not to quote your TFN. However, quoting your TFN reduces the risk of administrative errors and having extra tax withheld. Your payer is required to withhold the top rate of tax from all payments made to you if you do not provide your TFN or claim an exemption from quoting your TFN.
How do you find your TFN?
You can find your TFN on:
- your income tax notice of assessment
- correspondence we send you
- a payment summary your payer issues to you.
If you have a tax agent, they may also be able to tell you your TFN.
If you still can’t find your TFN you can:
- phone 13 28 61(Operating hours)
- visit your nearest shopfront (phone 13 28 61 to make an appointment)
- complete a Tax file number – application or enquiry for individuals form.
If you phone or visit us we need to know we are talking to the correct person before discussing your tax affairs. We will ask you for details only you, or your authorised representative, would know.