Understanding the Australian Tax-Free Threshold: A Complete Guide

If you're working or freelancing in Australia, understanding the tax-free threshold is crucial. This system can help you save thousands of dollars annually or increase your refund. However, incorrect application could lead to unexpected tax bills at the end of the financial year.

This guide explains what the tax-free threshold is, how to claim it, and what to watch out for if you have multiple sources of income.

Australian Tax File Number Declaration form – Make sure to tick the Tax-Free Threshold option correctly to maximise your tax benefits.

What Is the Tax-Free Threshold?

Under Australian tax law, residents for tax purposes do not pay tax on the first $18,200 of their annual income.

• $18,200 per year = approx. $1,517/month

• About $350/week

If your income is under this amount, you won’t owe any income tax. Tax only applies to the amount above this threshold.

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Claiming the Threshold: Tax File Number Declaration

When starting a new job, you must complete the Tax File Number (TFN) Declaration. Question 9 asks:

“Do you want to claim the tax-free threshold from this payer?”

Tick Yes to apply the threshold to income from this employer. This reduces how much tax is withheld from your wages.

Multiple Jobs? Claim It from Only One Employer

If you have more than one employer, you must only claim the tax-free threshold from one of them.

Example:

• Job A: $500/week

• Job B: $400/week

• 
  

Claim the threshold from Job A only. Job B will withhold more tax, but this is balanced during your annual tax return.

Claiming the threshold from both can result in underpaid tax and a large tax bill later.

What If I Don’t Claim the Threshold?

If you choose not to claim the tax-free threshold:

• More tax is withheld from your income

• But you may receive a larger refund when you lodge your tax return

This strategy can help freelancers or those with variable income manage their finances more conservatively.

Learn how to correctly apply the tax-free threshold on your TFN declaration to avoid paying more tax than necessary in Australia.

FAQs

Can I claim the threshold from multiple employers?

No. Claim it from only one employer to avoid underpaying tax.

Is the threshold applied automatically?

No. You must elect to claim it on your TFN Declaration form.

Can students or working holiday makers claim it?

Yes, if you are considered a tax resident. Generally, this means living in Australia for over six months and having a regular home here.

Can I change which employer applies the threshold?

Yes. Just resubmit a TFN Declaration with the updated choice.

I earned under $18,200 but still paid tax. What now?

You can claim a full refund by lodging a tax return.

Maximise Your Tax Efficiency with Expert Help

The tax-free threshold can be a powerful tool—if used correctly. Depending on your job situation, you may need a tailored strategy to avoid tax pitfalls.

Baron Tax & Accounting

• WhatsApp: +61 490 925 969

• LINE ID: barontax

At Baron Tax & Accounting, we help individuals understand and optimise their tax position in Australia. Whether you need help claiming the threshold, filing your return, or adjusting for multiple jobs, our team is here for you.