How to Claim Tax Free Threshold in Australia | Easy Guide
- Jul 11
- 10 min read
Let's get straight to it. The tax-free threshold is one of the most important—and often misunderstood—parts of the Aussie tax system. In simple terms, it lets you earn up to $18,200 in a financial year without paying a cent of income tax. It's the government's way of making sure people on lower incomes keep more of their hard-earned money.
For most people with a single job, claiming it is a no-brainer. It means more cash in your bank account with every payslip.
When Should You Claim the Tax-Free Threshold?
Getting this right on your Tax File Number (TFN) Declaration form when you start a new job is crucial. When you tick that box to claim the tax-free threshold, you're telling your employer not to withhold any tax from the first $18,200 you earn with them.
It's a core feature of our progressive tax system, designed to be fair. If your annual income stays below this $18,200 mark, you generally won't have to pay any tax at all.
A Real-World Example
Think about a uni student, let's call her Chloe, who just landed her first part-time gig at a local cafe. She figures she'll earn around $15,000 for the financial year.
If Chloe claims the threshold: Her boss won't take any tax out of her pay. She gets her full wage each week, which helps with her budget for textbooks and rent.
If Chloe *doesn't* claim it: Tax will be taken from the very first dollar she earns. Her take-home pay will be smaller each week. Sure, she'd likely get it all back as a refund after lodging her tax return, but that means her cash flow is tight all year long.
For Chloe, and anyone else in a similar boat, claiming the threshold is clearly the smart move.
Our Takeaway: Not claiming the threshold when you should is like giving the ATO an interest-free loan with your own money. Claiming it puts that cash where it belongs—in your pocket, throughout the year.
Deciding when to claim can feel tricky, especially if you have more than one source of income. This table gives you a quick snapshot to help you decide.
When to Claim the Tax-Free Threshold
Your Situation | Should You Claim It? | Why It Matters |
|---|---|---|
You have one job. | Yes | This ensures you get the full benefit and maximise your take-home pay. |
You have two or more jobs. | Claim it from your highest-paying job only. | Claiming it from multiple jobs will mean not enough tax is withheld, leaving you with a likely tax bill at the end of the year. |
You receive a pension or government payment. | It depends. Claim it from your main source of income. | If your main income is your pension, claim it there. If it's your job, claim it with your employer. Don't claim it for both. |
You're starting your first job. | Yes | As long as it's your only job, this is the standard and most beneficial approach. |
This is just the first step in managing your taxes effectively. For a more detailed breakdown, have a look at our comprehensive Australian tax-free threshold guide . Next, we’ll get into the specifics of filling out the form and how to handle more complex employment scenarios.
How to Fill Out Your TFN Declaration Form Correctly
Starting a new job comes with a bit of paperwork, and one of the first forms you'll see from your employer is the Tax File Number (TFN) Declaration form. This is a really important document. It’s your chance to tell your employer exactly how to tax you, and most importantly, how to claim the tax-free threshold.
Getting this right from the very beginning means your take-home pay will be correct from your first payslip.
The form itself is pretty simple, but there's one question that carries all the weight: "Do you want to claim the tax-free threshold from this payer?" How you answer this directly impacts your pay.
Ticking 'Yes' tells your employer not to tax the first $18,200 of your income for the year. If this is your only job, this is almost always the right box to tick.
Ticking 'No' tells your employer to withhold tax from the very first dollar you earn. You’d typically only do this if you have a second job or another main source of income where you're already claiming the threshold.
My two cents: Always have your TFN ready when you start a new role. If you get stuck on any part of the form, don't just guess. Your company's payroll or HR team is there to help, so don't be afraid to ask. It's much easier to get it right the first time!
Claiming the tax-free threshold is simple: just complete your TFN declaration and submit the form online — no stress, no surprises.
Completing the Form With Confidence
Your new employer will either hand you a paper copy of the TFN Declaration or point you toward their software or the ATO's online services to fill it out digitally. The main things it asks for are your personal details, your TFN, and that crucial choice about the tax-free threshold.
It's a standard ATO form, so it looks the same everywhere. Having a quick look at it beforehand can make the whole process feel less intimidating on your first day.
Once the financial year wraps up, all the tax you've paid is neatly summarised on your income statement. We've put together a guide on how to get your PAYG summary if you need a hand finding it. Correctly filling out this initial TFN form is the first, and arguably one of the most important, steps for a hassle-free tax time.
Navigating Common Tax Threshold Scenarios
Real life is rarely as simple as having one job from July to June. Your tax situation needs to be just as flexible as you are. Getting your head around how the tax-free threshold works in different situations is crucial if you want to avoid a nasty surprise from the ATO at tax time.
Let's walk through a few common scenarios we see all the time that can cause a bit of confusion.
Juggling Two or More Jobs
This is probably the most frequent question we get from clients. If you're working multiple jobs at the same time, you need to be smart about how you handle the tax-free threshold.
The golden rule is simple: claim it from your highest-paying job only.
For every other job, you must tick 'No' on the TFN Declaration form when asked if you want to claim the threshold. This tells your secondary employers to withhold tax from the very first dollar you earn with them. Getting this wrong is a classic mistake that almost guarantees you’ll end up with a tax debt.
Real-World Example: Let's say Sarah has a full-time office job earning $60,000 a year. She also picks up weekend shifts at a local bar, which brings in another $15,000. Sarah must claim the tax-free threshold from her main office job. This way, her primary employer correctly applies the $18,200 threshold, and her bar job withholds tax at the right rate, preventing any shortfall.
Switching Jobs Mid-Year
Changing jobs partway through the financial year means your tax situation gets a fresh start with your new employer. It’s vital to fill out a new TFN Declaration form accurately for your new role.
If this new job is going to be your only source of income moving forward, then you should absolutely claim the tax-free threshold. Your new payroll team will start taxing you correctly based on this declaration. Don't worry about the income from your old job; the ATO's systems will tally up your total income and tax paid from both employers when you lodge your annual return.
Rules for Working Holiday Makers and Temporary Residents
Tax works a bit differently for non-residents. If you're in Australia on a working holiday visa (like a subclass 417 or 462), you are generally taxed at a flat rate of 15% on every dollar you earn, right up to $45,000.
This means you cannot claim the tax-free threshold like an Australian resident can. It’s also your employer's responsibility to register as an employer of working holiday makers and apply this specific tax rate. Make sure your employer knows your visa status from day one to avoid any issues.
Other temporary residents might have different rules, so it’s always a good idea to check the latest ATO guidelines or have a quick chat with a tax professional.
Common (and Costly) Mistakes to Avoid
When it comes to your taxes, a few simple slip-ups can easily turn into major financial headaches. We see it happen all the time. But the good news is, once you know what to look for, these common errors when claiming the tax-free threshold are a breeze to avoid.
The Double-Dipping Dilemma
The single biggest mistake we see people make is claiming the tax-free threshold from more than one employer at the same time.
It might not sound like a big deal, but doing this almost guarantees a nasty surprise tax debt when you lodge your return. Each employer, thinking they're your main source of income, withholds less tax than they should. By the time the ATO adds it all up, you’re left with a significant shortfall to pay back.
Forgetting to Claim It at All
On the other hand, failing to claim the threshold on your main job is another classic misstep. If you don't tick that box on your TFN Declaration, your employer will tax you from the very first dollar you earn.
You’re essentially giving the ATO an interest-free loan with your own hard-earned money. Your take-home pay will be noticeably smaller, and while you'll most likely get it all back as a big refund, your cash flow takes a hit all year long. You want your money working for you, not sitting with the tax office until July.
Our Pro Tip: Be proactive. It’s your best defence against tax-time surprises. Make it a habit to check your payslips to see how much tax is being withheld. And always, always lodge a new TFN Declaration form whenever your job situation changes—whether you’re starting a new role or leaving an old one.
This one simple habit keeps you in the driver’s seat and stops the ATO from sending you an unexpected bill. It transforms tax from a once-a-year scramble into a smart, year-round financial strategy.
Where Did Australia's Tax-Free Threshold Come From?
To really get why you should always claim the tax-free threshold, it helps to go back in time and see where the idea came from. Australia's tax system wasn't just created out of thin air; it evolved over decades, shaped by major world events and a core belief in fairness.
Believe it or not, a national income tax is a pretty modern concept. Australia’s first federal income tax only came about in 1915, mainly to fund our efforts in World War I. The system kept changing, but a huge shift happened in 1942 with the introduction of the Pay-As-You-Go (PAYG) system. This made paying tax much simpler for everyday workers. If you're a history buff, the Treasury has a great brief history of Australia's tax system.
A System Built on Fairness
These changes paved the way for policies like the tax-free threshold. The goal was always to build a progressive tax system—one that doesn't hit low-income earners the hardest.
Think of it this way: the threshold is basically a social safety net. It’s the government acknowledging that everyone needs a base level of income to live on before they should have to start contributing tax.
When you understand that "why," it all clicks into place. Claiming the tax-free threshold isn't just a box to tick on a form. It’s you actively participating in a system designed for your benefit and being smart with your money. It ensures you keep more of what you earn, right from your very first pay cheque.
When to Get Professional Help with Your Taxes
Understanding how to claim the tax-free threshold is a great first step in managing your own pay. For most people with a standard salary, just ticking the right box on the TFN Declaration form is usually enough to keep things simple and avoid a nasty surprise at tax time.
But let's be honest, life and finances rarely stay that simple. Your situation can get more complicated, and that's when it's smart to call in an expert.
When Your Tax Situation Gets Complicated
Think of it this way: once your financial picture involves more than just a regular wage, it’s time to get professional advice. It becomes absolutely essential if you're:
Running a business: Juggling an ABN, tracking all your expenses, and figuring out GST adds layers of complexity that go way beyond a simple tax return.
Managing investments: Whether it's income from shares, a rental property, or even cryptocurrency, they all come with their own specific tax rules that you need to get right.
Juggling multiple income streams: If you're freelancing, working as a contractor, or holding down several different jobs, making sure you've paid the right amount of tax is critical to avoid a big bill later on.
Don't let a bit of confusion lead to a costly mistake. For businesses or even individuals who want to ensure their financial records are spot-on, taking a look at a [comprehensive audit preparation checklist](https://www.get-invoice.com/blog/audit-preparation-checklist) can be an incredibly useful exercise.
Expert Insight: The biggest mistake we see is people waiting until they're already in a tricky situation. Getting proactive tax advice saves you money and stress down the line because we can set you up correctly from the very beginning, not just fix problems after they happen.
Getting friendly, professional advice simply ensures you're making the right moves for your financial future.
Have More Questions? We’ve Got Answers.
We've walked through the main points, but from our experience, there are always a few specific questions that come up. Let's tackle some of the most common ones we hear about claiming the tax-free threshold.
What Happens If I Forget to Claim It?
It's a common mistake, but one with a real impact on your weekly budget. If you don't claim the threshold, your employer has to tax you from the very first dollar you earn.
This means less cash in your pocket each paycheque. While you'll almost certainly get this overpaid tax back as a larger refund at tax time, it does mean your cash flow takes a hit throughout the entire year.
Can I Change My Claim During the Year?
Yes, you absolutely can, and you should! Life changes, and so can your tax situation.
If you start a second job, stop working, or your main source of income changes, you can simply fill out and submit a new TFN Declaration form to your employer. It’s smart to do this as soon as your circumstances change to make sure you're always paying the right amount of tax.
I’m on a Working Holiday Visa. Should I Claim the Threshold?
The rules for working holiday makers (on visas 417 and 462) are a bit different. Generally, you’re taxed at a specific "backpacker tax" rate right from the first dollar you make.
This means you usually can't claim the tax-free threshold. To make sure you've got everything in order for a smooth tax season, our tax return checklist is a great place to start.
How Does This Affect My Centrelink Payments?
Taxable Centrelink payments count as income, so you need to be careful here. You can choose to claim the tax-free threshold from either your job or from Centrelink, but never from both.
The best approach is to claim it from whichever is your primary source of income. This simple step can save you from an unexpected tax bill at the end of the financial year.
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