Tax Free Threshold

What does tax free threshold mean?

The tax free threshold is like an un-taxed “starting amount” for your personal income or earnings.

To put that even more simply, if your total income is less that the tax free threshold, then you don’t have to pay any income tax to the ATO.

The ATO’s definition of your “income” is the total of money you earned from all jobs and other sources, including interest you received for bank savings plus income from any investments.

If you earned less that the tax free threshold but some taxes were deducted or witheld from your income, you will probably get all of the tax back in your tax refund, after you lodge your tax return.

How much is the tax free threshold for 2018?

The 2017 and 2018 tax free threshold is $18,200.

Do I need to lodge a tax return?

If you earn less than the tax free threshold, generally you won’t pay income tax to the ATO and you won’t need to lodge a tax return – but there are some special details explained below in examples 1 and 2. Sometimes you may need to lodge a tax return, in order to get back some tax money you paid. Even if you don’t lodge a tax return, the ATO requires you to submit a “non-lodgement advice” and Etax will help you with that, for free.

If you earn more than the tax free threshold, you definitely need to lodge a tax return. Your income tax will be calculated based on how much money you made above the tax-free threshold, and percentage of your income to be paid as tax grows as your income goes up. The amount of tax you pay is not calculated by a simple percentage – it is a more complex mathematical formula set out by the ATO, but it works in a fairly simple way.

Tax free threshold – Examples

Let’s break down the tax-free threshold with some examples. These three common cases help show whether or not you need to lodge a tax return. Plus, for people who don’t need to lodge a return, the ATO still has a requirement that you lodge a “Non Lodgement Advice” and we’ll cover that down below. (You can get that done for you, for free at Etax, whereas many tax agents charge fees for non-lodgement.)

Example 1

You earned more than $18,200

You must lodge a tax return.

If during the past financial year your taxable income was more than $18,200 you are required to lodge a tax return.

Fit into this category and ready to start now? Click here to get going and you could be done is 15 minutes!

Example 2

You earned less than $18,200, but paid tax on your income

You must lodge a tax return, to get back the taxes you paid.

Even though you earned under the new tax free threshold, as you paid tax on your income during the year, you should lodge a tax return.

In this situation it’s likely you may get all of the tax you paid throughout the year back after you lodge your tax return.

Want that money in your account as soon as possible? Click here to start your tax return now.

Example 3

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 may not be required to lodge a tax return this year.

In most cases if you fall into example 3, then you won’t need to lodge a return.

However, you may still need to lodge a tax return if you:

• are entitled to the private health insurance rebate
• had a reportable fringe benefits amount on your PAYG Summary
• had a reportable employer superannuation contribution on your PAYG Summary
• made a 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

Does example 3 apply to you?

If you don’t need to lodge a tax return this year… You still have to do something important.

What is a Non Lodgement Advice?

Don’t need to lodge a tax return this year? That does not mean you can just forget about it – you can’t ignore the ATO.  You need to submit a non-lodgement advice instead.  This document explains to the ATO that you do not need to lodge this year and ensures they don’t list you as having an outstanding return which still needs to be lodged.

To help clients who need to submit non-lodgement advice this year, we launched the Etax.com.au non-lodgement advice service. And the best part – it’s free!

To take advantage of this service, simply register online at Etax.com.au and fill in your income, deductions and details. Our accountants will then match your details with ATO records and if you don’t need to lodge a tax return, we’ll submit a non-lodgement advice on your behalf, for free.