Australia Tax-Free Threshold: Who Can Claim It and How

February 11, 20250 comments

What if there was a way to keep more of your earnings—without doing anything extra? Sounds too good to be true, right?

Well, for most Australians, there’s actually a way to legally avoid paying tax on part of their income. It’s called the tax-free threshold, and getting it right could make a significant difference in your wallet.

In this post, we’ll explore why this little-known benefit is so important and how it can work for you.

What Is the Tax-Free Threshold?

The tax-free threshold is the amount of income you can earn before you start paying tax. In Australia, this threshold is currently set at $18,200 per financial year. This means that if you earn $18,200 or less, you won’t pay a single dollar in income tax.

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Think of it this way: it’s like the first $18,200 of your earnings is completely invisible to the tax office. No deductions, no tax rates—just yours to keep.

How Much Can You Earn Before Paying Tax?

Breaking it down, the tax-free threshold is equivalent to:

$350 per week
$700 per fortnight
$1,517 per month

If you earn less than these amounts, you should not be paying any tax. But if your employer is withholding tax from your pay even when you earn under the threshold, you might be due for a refund.

How to Claim the Tax-Free Threshold

When you start a new job, your employer will ask you to complete a Tax File Number (TFN) Declaration Form. This form includes a simple question:

“Do you want to claim the tax-free threshold from this payer?”

If you have only one employer, the answer should be yes. This ensures that you aren’t having unnecessary tax deducted from your pay.

However, if you have multiple jobs, it’s a little trickier.

What If You Have More Than One Job?

If you have more than one employer at the same time, you can only claim the tax-free threshold from one. Normally, you should claim it from the employer who pays you the most.

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Why? Because if you claim the tax-free threshold from multiple employers, not enough tax might be withheld from your total earnings. This could leave you with a surprise tax bill at the end of the financial year.

What Happens If You Don’t Claim the Tax-Free Threshold?

If you choose not to claim the tax-free threshold, your employer will withhold tax from your very first dollar earned—even if you’re under $18,200 per year. This means you might end up paying more tax than necessary. The good news? You’ll likely get a refund when you lodge your tax return.

What If You Change Jobs?

If you switch jobs during the financial year, you can claim the tax-free threshold from your new employer. Your old employer will stop paying you, so it’s safe to claim it again. Just remember to fill out the TFN Declaration Form with your new employer.

What If You’re a Part-Year Resident?

If you’ve only been an Australian tax resident for part of the year, your tax-free threshold will be prorated based on how long you were a resident. This consists of:

A base amount of $13,464, plus
An additional $4,736, calculated proportionally based on the number of months you were a resident.

If you’re a non-resident for tax purposes, you don’t get a tax-free threshold at all—you’ll be taxed from the first dollar you earn.

What If Too Much or Too Little Tax Withheld?

If too much tax has been withheld, you’ll likely receive a tax refund when you lodge your return. But if too little was withheld, you might be hit with a tax bill.

If you want to adjust your tax withholding amount, you can complete a PAYG withholding variation application to ensure you’re paying the right amount.

FAQs About Tax-Free Threshold

What is the tax-free threshold in Australia?

The tax-free threshold is the amount of income you can earn each financial year before paying income tax. For most Australian tax residents, the tax-free threshold is $18,200.

Who can claim the tax-free threshold?

Australian residents for tax purposes can generally claim the tax-free threshold. Non-residents are usually not entitled to claim it.

How do I claim the tax-free threshold?

You can claim the tax-free threshold by selecting “Yes” on your Tax File Number (TFN) declaration form when starting a new job.

Can I claim the tax-free threshold from more than one employer?

Generally, no. If you have multiple jobs at the same time, you should usually claim the tax-free threshold from only one employer, typically the one that pays you the highest income.

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

Your employer will generally withhold more tax from your wages. While you may receive a refund after lodging your tax return, your take-home pay during the year may be lower.

Can I claim the tax-free threshold if I change jobs?

Yes. If you leave one job and start another, you can claim the tax-free threshold with your new employer. You should only claim it from one employer at a time.

Does the tax-free threshold reduce the amount of tax I pay?

Yes. The tax-free threshold allows eligible taxpayers to earn a certain amount of income before income tax applies, reducing their overall tax liability.

What happens if I accidentally claim the tax-free threshold from two jobs?

You may not have enough tax withheld from your income throughout the year, which could result in a tax bill when you lodge your tax return.

Does the tax-free threshold apply to casual workers?

Yes. Casual employees can generally claim the tax-free threshold if they are Australian residents for tax purposes and have not already claimed it with another employer.

Can sole traders use the tax-free threshold?

Yes. Sole traders who are Australian tax residents can generally benefit from the tax-free threshold when calculating their personal income tax obligations.

Do international students qualify for the tax-free threshold?

International students who are considered Australian residents for tax purposes may be eligible to claim the tax-free threshold, depending on their circumstances.

Do I need to lodge a tax return if I earn less than the tax-free threshold?

You may still need to lodge a tax return, especially if tax has been withheld from your income or if the ATO requires you to lodge one.

Does claiming the tax-free threshold affect my pay rate?

No. Claiming the tax-free threshold does not change your hourly rate, salary, or wages. It only affects the amount of tax withheld from your pay.

Can I change my tax-free threshold claim later?

Yes. If your circumstances change, such as starting a second job or leaving a job, you can submit a new TFN declaration to update your tax-free threshold claim.

Does the tax-free threshold apply to investment income?

The tax-free threshold applies to your total taxable income, which can include salary, business income, and certain investment income, depending on your circumstances.

Conclusion

At the end of the day, the tax-free threshold is one of the easiest ways to ensure you’re not overpaying tax unnecessarily. If you haven’t claimed it, or if you’re unsure whether you’ve set it up correctly, now’s the time to check. A little bit of attention now could mean hundreds—or even thousands—of extra dollars in your pocket over the year. And who wouldn’t want that?

So, are you claiming the tax-free threshold correctly, or are you leaving money on the table? Now that you know the ins and outs, make sure you’re making the most of your earnings!

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