Tax Free Threshold Australia: How It Works and What You Can Claim
The tax free threshold in Australia lets most resident taxpayers earn $18,200 before any income tax applies. You claim it on the TFN declaration you give your employer, and you should generally only claim it from one payer at a time if you have more than one job.
What Is the Tax Free Threshold in Australia?
The tax free threshold is the first $18,200 of income each year that Australian residents don't pay tax on.
According to the Australian Taxation Office, most Australian residents can claim the tax free threshold on the first $18,200 they earn in an income year. Income above that amount is taxed at the relevant marginal rate for the rest of the year.
How Do You Claim the Tax Free Threshold?
You claim the tax free threshold by answering yes to the relevant question on the TFN declaration you give your employer or payer.
If you're an Australian resident for tax purposes, you can choose to claim or not claim the tax free threshold on that declaration, including for payments from Centrelink. Claiming it means your payer won't withhold tax on the first part of your pay; not claiming it means more tax is withheld upfront, which can mean a bigger refund at tax time.
Part-Year Tax Free Threshold for New Residents
If you only became an Australian resident partway through the income year, your tax free threshold is lower and made up of two parts:
Component | Amount | |
Flat amount | $13,464 | |
Additional amount | Up to $4,736, pro-rated by the number of months you were in Australia (including the month you arrived) | |
Full tax free threshold (whole year) | $18,200 |
If you were a non-resident for the entire income year, you can't claim the tax free threshold at all.
Can You Claim the Tax Free Threshold From Two Jobs?
Generally no: you should only claim the tax free threshold from one payer, usually your highest-paying job.
The ATO explains that you can only claim it from more than one payer at the same time if your total income from all payers combined is expected to be $18,200 or less. If your combined income is higher than that and you claim the threshold from two jobs anyway, too little tax will be withheld across the year, and you may end up with a tax bill to pay the difference when you lodge.
The usual approach is to claim the threshold from your highest-paying job and ask your other payer to withhold tax at the higher "no tax-free threshold" rate instead.
What Happens If You Don't Claim It or Claim It Incorrectly?
Not claiming the tax free threshold means more tax is withheld from your pay, which usually means a larger refund rather than a tax bill.
Some people deliberately don't claim it on a second job so they don't end up owing money at tax time. On the other hand, claiming it from more than one payer when your combined income is above $18,200 usually leads to under-withholding and a tax debt once your return is assessed. Tax Falcon can check your withholding and lodge your return correctly either way.
Does the Tax Free Threshold Change if You Start or Leave a Job Mid-Year?
Starting or leaving a job partway through the income year doesn't change the size of your tax free threshold if you're a resident for the whole year: you're still entitled to the full $18,200 for that income year, no matter how many months you actually worked.
What changes is how your withholding is calculated at each job. If you leave one job and start another, you should claim the tax free threshold from whichever is your current or main job at the time, and not claim it again from a previous employer you've already left. Your end-of-year tax return reconciles everything regardless, so even if withholding wasn't perfect during the year, the correct $18,200 tax free threshold is applied once you lodge.
Frequently Asked Questions
How much is the tax free threshold in Australia?
The tax free threshold in Australia is $18,200 a year for most resident taxpayers. Income above that amount is taxed at the relevant marginal rate.
How do you claim the tax free threshold?
You claim the tax free threshold by answering yes to the relevant question on the TFN declaration you give your employer or payer when you start a job.
Can you claim the tax free threshold from two jobs at once?
Generally no. You can only claim it from more than one payer if your combined income from all payers is expected to be $18,200 or less.
What is the tax free threshold for part-year residents?
Part-year residents get a flat $13,464 plus up to $4,736 pro-rated by the number of months they were an Australian resident, adding up to a maximum of $18,200.
What happens if you don't claim the tax free threshold?
More tax is withheld from your pay than is strictly necessary, which usually results in a larger refund once you lodge your tax return.
Not sure if you're claiming the tax free threshold correctly? Start your tax return with Tax Falcon and we'll check it for you.
