If you are making your living in the Land Down Under, you have to pay income tax, regardless of your residency status. But, at least permanent residents can avoid these tax charges up to a certain income limit, provided they request this allowance.
So if you are wondering: ‘What happens if I don’t claim the tax free threshold in Australia?’, you’re in luck, as we explain everything below.
Keep reading on!
What Is the Tax-Free Threshold in Australia?
Australia’s tax-free threshold, which is currently set at $18,200, is the income level at which Australian residents start paying tax on their personal earnings.
Furthermore, the Australian Taxation Office (ATO) implements a progressive taxing system wherein the tax rates increase the higher the income:
- $0—$18,200: free of tax
- $18,201—$45,000: 19 cents for each $1 over $18,200
- $45,001—$120,000: $5,092 plus 32.5 cents for each $1 over $45,000
- $120,001—180,000: $29,467 plus 37 cents for each $1 over $120,000
- $180,001 and over: $51,667 plus 45 cents for each $1 over $180,000
For illustration, the tax-free limit is equivalent to getting $350 a week or $1,517 a month. However, even if your earnings exceed the tax-free threshold, you will only pay tax on the excess amount.
How to Claim the Tax-Free Threshold?
After learning what is a tax-free threshold in Australia, you should also find out how to file for it since it won’t be granted otherwise.
To get this tax allowance, you only have to fill out the Tax File Number (TFN) Declaration and submit it to your employer(s). You can either complete an online form via ATO’s Online Services or access the blank NAT 3092 form and fill it out electronically or by hand.
Before using the TFN Declaration, inquire with your employer about their preferred method of submitting the form to avoid completing it twice. Note that if you work for more than one employer, you have to submit your form to the one that pays you the most.
Note: Even if your company withholds money for tax purposes and you earn below the threshold, you can reclaim the paid amount by applying for a tax refund.
What Counts as Income?
Per current ATO regulations, you must declare any income for tax purposes if it comes in one or more of the following forms:
- Employer-paid income (including annual leave loading above $320)
- Any investment-generated income
- Pension payments and annuities
- Government allowances
- Foreign-issued income
- Trust or business-related income
- Various prizes, awards, and insurance payment
Note: You may also be required to declare earnings coming from various side hustles, crowdfunding projects, and asset-generating income.
If you are interested to learn about additional income opportunities, take a look at the options presented in this insightful article.
What Happens if I Don’t Claim the Tax-Free Threshold?
The main drawback of not claiming the tax-free threshold in Australia is the mandatory tax charges you will have to pay on your yearly income, even if it falls below $18,200.
So if you are wondering: ‘Do I want to claim the tax-free threshold?’, the answer is ‘yes’ unless you want to receive a larger tax return at the end of the year, a strategy employed by some residents who choose to save more by spending less throughout the year.
What About New Australian Residents?
Newcomers making their living in Australia must abide by a lower and adjusted tax-free threshold comprising a flat amount of $13,464, and an extra $4,736 allocated based on the number of months they spent working in Australia including the arrival month.
When calculating the tax-free limit in such cases, you have to consider Australia’s financial year, which runs from the 1st of July to the 30th of June.
Note: This special threshold only applies for the first year, and subsequent years follow the standard taxing scheme.
Hopefully, you’ve learned more about the pros and cons of claiming the tax-free threshold in Australia by reading this brief guide. Ultimately, base your decision on whether you would like to earn less to have lower tax charges or get the full payment but pay a larger tax bill.
1. Can I claim the tax-free threshold if I have more than one job?
Yes, you can. However, you can apply for the tax-free threshold only with one of your employers, typically the one that pays you more. Your second payer must withhold tax on the higher rate in such cases.
2. How to change the tax-free threshold employer?
To change the business with which you claim your tax-free threshold, you have to fill out the ATO Withholding declaration form twice to appoint a new higher-paying employer and stop claiming the tax-free limit with your old employer.
3. Is it better to not claim the tax-free threshold?
If you got the answer to the question: ‘What happens if I don’t claim the tax-free threshold?’, and you are still wondering whether or not to do it, note that you should review your expected annual expenses to see if a taxed paycheck or a lump tax charge suits your circumstances better.