Complete Beginner’s Guide to the Tax-Free Threshold in Australia

Complete Beginner’s Guide to the Tax-Free Threshold in Australia

We all like grumbling about having to pay heart wrenching thing called Tax, but it has a significant influence on your personal finances, so it’s vital to understand how it works.

The tax-free threshold is an important concept to grasp when it comes to paying taxes. If you are an Australian resident, make an income, and have a tax file number (TFN), you must pay income tax in Australia.

However, the tax-free threshold is one of the factors that decide how much tax you must pay and it may also affect the size of your tax refund – or whether you are left with a large ugly tax bill.

Australia Progressive Tax System

The tax-free threshold is a set amount of money that you can earn each fiscal year without paying any taxes on it. The tax-free threshold in Australia is $18,200, according to the Australian Taxation Office (ATO). So, if you are living in Australia, the first $18,200 of your yearly income is tax-free.

The tax-free level of $18,200 is comparable to:

  1. $350 a week
  2. $700 every two weeks
  3. $1,517 monthly

Australian Resident Tax Rates 2022 – 23

Australia has a progressive tax system, which means that the more you earn, the more tax you pay. If your yearly income exceeds $18,200, you will be taxed in one of the following brackets:

Taxable Earnings Taxed Income
0 – $18,200 Nil
$18,201 – $45,000


19 cents for every $1 in excess of $18,200
$45,001 – $120,000 $5,092 + 32.5 cents for every dollar over $45,000
$120,001 – $180,000


$29,467 + 37 cents for every dollar above $120,000
$180,001 or more $51,667 + 45 cents for every dollar beyond $180,000


What constitutes income?

Income that must be disclosed for tax reasons is defined by the ATO as:

  • Earnings from employment
  • Annuities and super pensions
  • Payments and allowances from the government
  • Income from investments (including interest, dividends, rent, and capital gains tax)
  • Profits from business partnerships and trusts
  • Foreign earnings
  • Other sources of revenue include salary and insurance payments, discounted shares through employee stock purchase plans, and prizes and awards.

You must also submit any money or profits you get from:

  • Crowd-funding
  • Taxation and the sharing economy
  • Personal services revenue derived from labor-hire payments

How to Claim the Tax-Free Threshold?

It is simple to claim the tax-free threshold. When you begin a new work, your employer will provide you with a tax file number declaration form to complete. Because your employer will not automatically compute how much tax you owe based on the tax-free level, it is critical that you declare it on your tax file number declaration form every time you start a new employment.

Can I claim the tax-free threshold if I do two or more jobs?

You should only claim the tax-free amount for one of your jobs if you have multiple jobs, receive a taxable pension, or receive government benefits in addition to a regular part-time job. If you have multiple payers active at once,” the ATO says, “we generally require that you only claim the tax-free threshold from the payer who usually pays the highest salary or wage.”

What is the phenomenon of taxable income?

The amount that remains after taking into account any tax credits to which you are eligible and subtracting all necessary expenses incurred in generating your income is your taxable income. You must sum up all of your qualified claims, take that total out of your income for the financial year, and then use that number to determine the income you will be taxed on. Using a tax calculator for the most recent fiscal year is the quickest and most precise way to accomplish this. You’ll quickly realize that maximizing your refund or significantly reducing your tax payment by taking all of the allowable deductions is possible.

How to pay income tax in Australia?

Your employer should routinely deduct your income tax from your pay or compensation if you work for them. Each pay period, your employer must use their accounting software to make a direct tax payment to the Australian Taxation Office (ATO).

You must make your own tax filings if you receive income from sources other than your employment, such as interest from a bank account, stocks, real estate, or a side business.

Who is required to lodge/file a Tax return in Australia?

Even if you earn less than the threshold, all taxpayers are required to file a tax return. This comprises:

  • Any resident taxpayer earning less than $18,200 who had income tax withheld from their paycheck for the fiscal year
  • Any Australian resident, regardless of income or loss, who has a total income that exceeds the $18,200 tax-free threshold for the income year.

What happens if I do not claim the tax-free amount?

No matter how much money you make, even if it’s less than $18,200, you’ll have to pay tax on it all if you don’t claim the tax-free threshold.

As part of a “tax-free threshold savings strategy,” some people choose not to use the tax-free threshold, which results in them paying more tax throughout the year but almost ensuring a larger tax refund at the end of the year. Those who aren’t good at saving money like to use this as a forced savings method, but doing so means you’ll be in worse financial shape throughout the year because your take-home pay will be lower.

When should I file my tax return in Australia?

The deadline for filing tax returns is the 31st of October, which falls between July 1 and till that. If you file your return through a tax agent, extensions might be allowed. You can acquire a large amount of additional time by doing this, up until May 15th of the subsequent calendar year. If you need to request an extension, speak with your local ITP Tax Accountant to discuss your lodgment date.

It’s not too late if you miss the tax filing deadline, but don’t let it drag on for too long. For late tax returns, the ATO imposes severe fines and penalties.

What tax deduction should I claim?

Your tax bill will be smaller the closer your taxable income is to the tax-free amount. Therefore, it makes sense to take advantage of all the tax breaks that are available for expenses that you have incurred for your job. Many Australians obtain a sizable refund when they file their tax return because keeping solid tax records and optimizing your deductions can significantly lower your income tax.

You might be qualified to claim those charges as a tax deduction if you paid money to achieve your income, such as for uniform purchases and maintenance, travel and meal expenses, or ongoing educational fees. Keep in mind that you can only write off expenses that are directly relevant to your job. You cannot deduct personal costs from your taxable income.

Why my refund is less than previous year, or why am I owed an unexpected amount?

You most likely had less tax with-held by your company and so earned more money each pay, resulting in a lesser refund or bill owed. This is especially true for taxpayers who have many occupations/jobs and payment summaries. Even if each employer correctly applies the ATO income tax rates to compute tax withheld, the total tax paid on your income may be insufficient to satisfy the tax payable due to the progressive tax rates.

What can I do to prevent this from happening again next year?

To make up the difference, have one of your jobs deduct a higher amount of tax each pay month. To make this modification, contact your payroll department. Based on this year’s tax, Tax & Accounting Australia’s adviser may estimate the deficit amount every pay period.

Contact and tell them how much you made from each job and how much tax you paid so they can let you know if there is a gap and you may change what you pay as you go.

What should I do if I can’t afford to pay my tax obligation right now?

The Australian government requires you to file a tax return whether your income comes from wages, salaries, business profits, bank interest, side jobs, or returns on investments. Tax & Accounting Australia might postpone the due date of your tax return to the next year. You must complete the tax return, which we will keep on your due lodgment date as determined by the ATO.

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