What it is
The tax-free threshold is the amount of income you can earn each financial year before income tax applies. For Australian residents it is $18,200. It works out at about $350 a week, $700 a fortnight or $1,517 a month.
Everyone who is a resident for the full year gets the threshold when their tax return is assessed. 'Claiming' it is about how much tax your employer withholds during the year.
Claiming it with your employer
When you start a job you complete a tax file number declaration and choose whether to claim the tax-free threshold from that payer. If you claim it, less tax is withheld from each pay.
If you have more than one job or payer at the same time, the ATO generally expects you to claim the threshold from only one – usually the one that pays the most. Your other payer then withholds at a higher 'no tax-free threshold' rate, which helps avoid a tax bill at the end of the year.
It does not change your final tax
Whether or not you claim the threshold with an employer, your tax for the year is worked out on your total taxable income when you lodge your return. Not claiming simply means more is withheld along the way, and any excess is refunded.
This is why our calculator shows the same annual tax either way, with a note that your regular pay would be lower if you do not claim it.
Who does not get the full threshold
The threshold can be reduced or unavailable if:
- you are a foreign resident for tax purposes (no threshold applies);
- you became or stopped being a resident part-way through the year (a part-year threshold applies);
- you are a working holiday maker (you pay 15% from the first dollar on income up to $45,000).
The effective tax-free amount can be higher
Because of the low income tax offset of up to $700, residents on low incomes can earn somewhat more than $18,200 before any income tax is actually payable.