It goes without saying that most employed Australians will have to pay tax on their income. However, there is an income threshold which means that if you earn below this in a financial year, you can receive a refund on the tax that is deducted by your employer.
Whether you work part time, full time, or casually, as an Australian resident you have to pay income tax. However, you don’t always have to pay tax if you’re below the tax-free threshold.
If you’re an Australian resident, the first $18,200 of your total yearly income is not subject to income tax. If you make $18,200 or under, you will receive a full tax refund for any tax you pay.
Even if you make above this amount, claiming the threshold reduces the amount of tax that is withheld from you throughout the year.
Non Australian residents are not able to access the threshold and must pay tax on everything they earn in Australia. If you’re unsure whether you are eligible to claim the tax-free threshold, you should engage a tax lawyer.
How to claim the tax-free threshold
Whenever you start employment at a new job your employer (payer) will give you a Tax File Number Declaration (NAT 3092) for you to complete. Every working Australian is allocated a Tax File Number (TFN), and this stays with you for your whole life. Should you apply for payments from Centrelink, you will also have to complete a tax file number declaration as government agencies are also classified as a payer by the ATO.
Question 8 of the Tax File Number Declaration asks ‘Do you want to claim the tax-free threshold from this payer?’ to which you place an ‘X’ in the Yes box. After this have 28 days to submit your Tax File Number Declaration with your tax file number to your payer in order to claim an exemption.
If your income falls below the tax-free threshold and you are under 18 years old, you can also be exempt from paying tax.
Is it compulsory to claim the tax-free threshold?
If you have more than one employer, you can opt out of claiming the tax-free threshold. The threshold is generally claimed on the job which generates you the most income. This means that in the course of the financial year, you will pay less tax.
Your secondary employer is then required to withhold tax at the higher ‘no tax-free threshold’ rate.
If however, you are certain that your total income will be less than $18,200, you may then claim the tax-free threshold from each employer.
George works part-time at a cafe called ‘The Local’. He only works 2 days a week, each being for a 6-hour shift. George also works part time at a bar named ‘G’s’. He works 5 nights a week doing 7 hour shifts. George should claim the tax-free threshold for his employment at ‘G’s’ as this is where the majority of his income is generated. Further, not claiming the tax-free threshold from ‘The Local’ means he will pay less tax in the long run.
What if you are a resident for part of the year?
If you are a resident in Australia for only part of the year, the tax-free threshold that applies to you may vary. The minimum amount that will apply is $13,464, with the remaining amount dependant on the duration of your residence. You can find a detailed breakdown of this calculation on the ATO’s website.
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