Tax Return:: What Is the Tax-Free Threshold and How Does It Work?

Hello, this is your tax and super specialist, P&C Tax Professionals.

I’m sure many of you are familiar with the question: “Do you want to claim the tax-free threshold from this payer?” since it is the question that is always asked when it comes to filling out your tax file number declaration form for your new employer. So, what exactly is the tax-free threshold and how will it affect your tax return?

<What is the tax-free threshold?>

The tax-free threshold basically represents the first $18,200 of the income you earn throughout the income year which is free from tax (i.e., you do not have to pay any tax on this amount). However, claiming the tax-free threshold will reduce the tax withheld from your gross income. You can decide on whether or not to claim the tax-free threshold when completing your TFN declaration form.

If you do choose to claim the tax-free threshold:

> You will pay no tax for income that is under $18,200

> Your payer (including Centrelink) will begin to withhold tax if your income is above $18,200

For your reference, the tax-free threshold of $18,200 is equivalent to earning the below income:

> Weekly: $350

> Fortnightly: $700

> Monthly: $1,517

<When can you claim the tax-free threshold?>

Generally speaking, if you are receiving income from more than one payer at the same time, you may only claim the tax-free threshold from one of your payers. It is recommended that you claim the tax-free threshold from the payer who pays you the most.

You may be receiving your income from two or more payers simultaneously if you:

> have a second job or multiple jobs

> have a part time job in addition to receiving a taxable pension or allowance from the government

> are working as a contractor, sole trader or some other business structure with your ABN

If you have more than one payer, you must request your other payers to withhold tax from your gross income at a higher rate as you cannot claim the tax-free threshold from multiple payers at the same time. This way, you will be able reduce the possibility of having to face a tax debt when you lodge your tax return.

In today’s blog post, we have briefly touched base on the concept of the “tax-free threshold” and if you have any other questions related to tax or super, please feel free to contact us through our Official Facebook Page (P&C Tax Professionals – Australia) or direct them to our email address at pnctax@naver.com.

Thank you and bye for now!