Income tax
Tax-free threshold
The tax-free threshold is the amount of annual taxable income on which an Australian resident pays no income tax, which is claimed through the tax rates and through employer withholding.
The tax-free threshold is the first slice of income on which no tax is payable. It is built into the resident tax rates, and every Australian resident for tax purposes is entitled to it. The amount is set by legislation and has changed over time, so this entry does not quote a figure. The ATO website shows the current threshold in its resident tax rate tables.
The threshold applies once per person per income year, not per job. If you have more than one source of income, you can only claim the tax-free threshold from one payer. This is why a TFN declaration form asks you whether you want to claim the threshold. If you claim it from your main job, extra jobs are generally taxed without it, which can lead to more tax being withheld at the second job.
Because of this, some people who work two jobs find that too much or too little tax has been withheld, and this is corrected when they lodge the tax return. The return takes into account your total taxable income, and the threshold is applied only once. Under-withholding can leave a tax bill, and over-withholding can lead to a refund, depending on your total income.
Foreign residents do not get the tax-free threshold. Their income is taxed from the first dollar. Working holiday makers are taxed under a separate scale. Residents who are in Australia for only part of the year may have their entitlement worked out with special rules, so check the ATO for guidance if you moved to or from Australia during the year.
For businesses, the threshold matters in a few ways. A sole trader benefits from it on their total taxable income including business profit. Companies do not have a tax-free threshold. Also, someone below the threshold may not be required to lodge a return, but may still choose to do so to recover tax withheld. Having no tax to pay does not remove the need to register for GST if turnover reaches the registration threshold.
The tax-free threshold and the GST registration threshold are completely different concepts, and should not be confused. Keep your TFN declaration and income records up to date. This is general information only, so confirm your circumstances with the ATO or a registered tax professional.
Worked example
Zoe works a full-time job and a weekend casual job. She tells her main employer to apply the tax-free threshold, so that job withholds tax with the threshold built in. Her casual employer withholds without it because she can claim it only once. At tax time, her total income is assessed with the threshold applied once, and the difference in withholding is reconciled in her refund or bill.
Practical tips
- Claim the tax-free threshold from only one payer at a time, usually your main job.
- Check the ATO website for the current threshold amount, since it is set by legislation and can change.
- Do not confuse it with the GST registration threshold, which is a separate test based on GST turnover.