Tax Free Threshold

tax free threshold


Tax Free Threshold


Is your refund smaller than last year?


Do you have an unexpected amount owing to ATO?


Why do I have to pay when tax rates have gone down and 1st $18,200 are tax free?


If you answered Yes to one of the above questions, you need to understand what his Tax Free Threshold and how it works.


What is the tax-free threshold?


If your total income for the year is in the lowest income or tax bracket, you pay no tax. Once you move out of the lowest bracket and into the next one, you have crossed the threshold from paying no tax to paying at least the lowest rate of tax.


If you are an Australian resident for tax purposes, the first $18,200 of your yearly income is not taxed. This is called the tax-free threshold. Therefore, by claiming the threshold, you reduce the amount of tax that is withheld from your pay during the year.


In 2015–16 the $18,200 tax-free threshold for pay as you go (PAYG) withholding purposes is equivalent to:


  • $350 a week
  • $700 a fortnight
  • $1,517 a month.


When your taxable income exceeds your tax-free threshold you pay tax on the excess.


Claiming tax free threshold from more than 1 employer can land you with an unexpected tax bill. When you claim tax free threshold from more than employer, technically you have claimed threshold more than once and your employer will deduct tax from your salary assuming this is your first and only job. As a result, you will be under taxed during the year. At the time of tax return, you will end up with a tax bill.


Example –


John earns $350 per week ($18,200 for the year) from employer A and also earns $350 per week ($18,200 for the year) from employer B.


John claims tax free threshold from both employers due to which he ends up paying no tax during the year. Under this scenario, John’s gross income for the year would be $36,400 which is above the tax free threshold. As a result, John will be taxed on income above $18,200 at his marginal rate and will have to pay tax plus 2% Medicare levy at the time lodging tax return.


What can I do to make sure this is not repeated next year?


When you start your 2nd job during the year, you are asked to complete a Tax File Number declaration form. This form allowed you to quote your tax file number (TFN), claim the tax-free threshold and provide other information that helped your payer calculate the correct amount of tax to withhold from your pay, and send to the Australian Taxation Office (ATO). Download the form here – Tax File Number Declaration Form.


For assistance please contact Expert Tax on 0449 952 855 or send your enquiry via our website –