What is the tax free threshold?
The tax free threshold is the amount of money (income) you can earn each year before you have to start paying tax.
In Australia, the first $18,200 you earn between 1 July and 30 June is tax-free, regardless of which employer you earned it from.
NOTE: The ATO’s definition of ‘income’ is the total amount of money you earned from ALL jobs and other sources.
This includes:
- salary/wages from an employer
- money from a business or contracts
- interest you received as interest from bank savings
- money earned from any investments (like shares or any other capital gains)
Should I claim the tax free threshold?
The short answer is yes. By claiming the tax free threshold, you don’t pay tax on the first $18,200 you earn during the financial year.
What happens if I don’t claim the tax free threshold?
By ticking “no” on your Tax Declaration Form, your income is taxed at a higher rate. This means you receive less money in your pocket each pay. At tax time, the ATO will calculate your tax, based on your total earnings, and refund the extra tax you paid throughout the year.
Do I claim the threshold for a second job?
No, if you have two jobs or change jobs part of the way through the financial year, you should NOT claim the tax free threshold on the second job.
If you claim it on both jobs, that means you wouldn’t pay tax on the first $36,400 you earned, instead of just the first $18,200. That means you would owe the ATO tax on the additional $18,200 income at tax time!
An employer doesn’t know how much you have earned or how much tax you’ve paid from work you’ve done through other employers, so it’s your responsibility to only claim the tax free threshold one time.
On the money you earn over the tax free threshold, you pay a set percentage of tax based on your income tax bracket. This is why it’s important to only claim the tax-free threshold one time, since the income of two jobs could put you into a higher tax bracket. The higher the tax bracket, the higher percentage of tax you’ll pay at tax time.
What should I do when I change jobs?
When you change jobs during the financial year, you likely claimed the tax free threshold on the first job, not on the second. You need to claim the tax free threshold for your new job in the next financial year.
You should request a Tax Declaration Form from your HR/payroll team at the beginning of the next financial year (July 1). Update it to include the tax free threshold moving forward, for your new job.
Do I need to lodge a tax return if I earned less than the tax free threshold?
If you earned less than $18,200, but paid tax on your income:
Yes, you must lodge a tax return to get back the taxes you paid.
Even though you earned below the tax-free threshold, you should file a tax return because you paid tax. You’ll likely get all of the tax you paid that year back from the ATO, after you lodge your tax return.
Want that money in your account as soon as possible? Click here to start your tax return now.
You earned less than $18,200 and paid no tax on your income:
You might not need to lodge a tax return.
Good news! If you earned less than $18,200 AND you didn’t pay any tax on this income, then you probably won’t need to lodge a tax return this year.
In most cases if you fall into this category, you won’t need to lodge a return, but you still need to do a ‘Non-Lodgement Advice’. These are free to submit through Etax.
What is a Non-Lodgement Advice?
A Non-Lodgement Advice (NLA), is a document that tells the ATO that you don’t need to lodge a return that year due to your income being below the tax threshold. If you don’t tell the ATO they will assume you have an outstanding return. This will put you on their overdue list.
You may still need to lodge a tax return if you:
- earned interest from your bank account/s
- are entitled to the private health insurance rebate
- had a reportable fringe benefits amount on your PAYG Summary/income statement
- had a reportable employer superannuation contribution on your PAYG Summary
- made a capital loss or can claim a loss made in a previous year
- were an Australian resident for tax purposes and you had exempt foreign employment income plus $1 or more of other income
- are required to lodge a tax return by another government body like Centrelink.
Example – Claiming the tax free threshold twice:
Jimmy works part-time as a café barista. He also works casually as a server for an event catering business and claims the tax free threshold on both.
At the café, Jimmy earns $34,000 for the entire year. As a server, he received $20,000.
If he claimed the tax free threshold on both jobs:
| Café | Server | Total |
|---|---|---|
| Income: $34,000 | Income: $20,000 | Income: $54,000 |
| Tax Paid: $3,002 | Tax Paid: $342 | Tax Paid: $3,344 |
| Jimmy now owes: $4,673 more |
