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Tax-Free Threshold In Australia

Q: I cannot afford to pay my tax bill. What can I do?

A registered tax agent can help you defer your tax return. You will still need to lodge a tax return, but they can secure a delay to allow you to finalise it per your ATO deferment.

Q: Is not claiming a tax-free threshold an option?

It is, you can choose to forego the tax-free threshold. However, by not claiming the tax-free income, the entirety of your wage becomes taxable income. Therefore, the amount of tax you pay will be much higher and due in a lump sum.

Q: Do I tick no or yes to the tax-free threshold?

In the majority of circumstances, you would be saying yes to the tax-free threshold. As long as you have a single employer, your answer should be yes. If you have more than one employer, then you will need to select no as you have likely selected yes for another employer. You can contact the payroll department of the company that withholds tax to discuss how you can ensure you pay the right amount of tax. Ideally, you should claim the tax-free threshold that pays the highest wage. The exception to this rule is if you are absolutely certain that your total earnings from all jobs will fall below the $18,200 threshold. If it exceeds this, you can complete the withholding declaration form and give it to the employer who pays you the highest wage. If you fail to do this, you will be undertaxed and face a tax bill when you lodge your return at the end of the financial year.

By QuickBooks Australia

March 13, 2023

Australian taxpayers have a tax-free threshold for earnings which effectively allows earning a certain amount of money before paying taxes. It's known as the tax-free threshold. If you earn less than the threshold, you do not need to pay tax. If you earn over the threshold, you will need to pay tax on the excess.

What Is The Tax Threshold in Australia?

The first $18,200 of income is tax-free, and it breaks down to a monthly salary of $1,517, a fortnightly wage of $700 or a weekly wage of $350.

How Does the Tax-Free Threshold Work If Someone Has Two Jobs

When an individual starts a job with a new employer, they are required to complete the Tax File Number Declaration Form. This advises the employer that you wish to claim your tax-free threshold from this payer.

Question 9 in the form asks whether you want to claim the threshold and by answering yes, you signify that you do. If you work multiple jobs, you should choose yes on the TFN form for the highest paying position. You cannot claim for more than one job. If you do, the withholding tax will not be sufficient. At the end of the financial year, when you file your tax returns you will end up in tax debt.

Holding two positions can sometimes cause people to fall into a tax trap, even if all parties do the right thing according to the Australian Taxation Office's rules. The first job is generally given the tax-free threshold and any subsequent positions are not. If the second (or third) position ends up attracting a higher salary or wage, it causes underpayment of taxes which can result in a tax bill.

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Frequently Asked Questions about the tax-free threshold

Why is my refund lower than last year or why do I owe unexpectedly?

The tax-free threshold was increased, so it is likely you had more money for each payment because the wrong tax was withheld. This could be the reason for an unexpected tax bill or a smaller tax refund. If you are an Australian resident for tax purposes, you are more likely to experience this issue if you work multiple jobs. Even if your employer follows the correct income tax rates to withhold the proper amount, it might not be enough tax to cover the amount of tax you owe due to progressive tax rates.

How can I avoid this in future?

The correct course of action to avoid this from reoccurring would be to have one of your employers deduct a more significant amount of tax withheld each pay period. This will cover the shortfall, and you can do this by contacting your company's payroll department. They can help to arrange the change and prevent an unexpected bill next year.

A tax consultant can guide the process to highlight how much each job pays and how best to address the shortfall to adjust the tax withholding.

I cannot afford to pay my tax bill. What can I do?

Is not claiming a tax-free threshold an option?

What is the tax-free threshold?

$18,2000. If you do not claim this threshold, you will pay income tax on all types of income at any amount. You would end up paying far more than you would have had you opted to claim the tax-free income on your TFN when starting a new job. You would likely receive the money back in the form of a refund once your return is filed, but you will still need to pay it out before you can claim it back.

Do I tick no or yes to the tax-free threshold?

In the majority of circumstances, you would be saying yes to the tax-free threshold. As long as you have a single employer, your answer should be yes. If you have more than one employer, then you will need to select no as you have likely selected yes for another employer. You can contact the payroll department of the company that withholds tax to discuss how you can ensure you pay the right amount of tax.

Ideally, you should claim the tax-free threshold that pays the highest wage. The exception to this rule is if you are absolutely certain that your total earnings from all jobs will fall below the $18,200 threshold. If it exceeds this, you can complete the withholding declaration form and give it to the employer who pays you the highest wage. If you fail to do this, you will be undertaxed and face a tax bill when you lodge your return at the end of the financial year.

QuickBooks can help you on tax time

Whether you're a tax advisor or a small business owner, QuickBooks Tax Software can help you manage the tax system with ease.

With QuickBooks, you can streamline your BAS and tax workflows. With access anytime, anywhere, and all the forms you need, and free access when you sign up to QuickBooks Online Accountant.

You can import data from QuickBooks, Excel, MYOB, and Xero which saves you time and the hassle of data entry. Your clients can sign electronically to shorten the turnaround time and easily reconcile accounts.

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Tax-Free Threshold In Australia

What Is The Tax Threshold in Australia?

How Does the Tax-Free Threshold Work If Someone Has Two Jobs

Grow Your Business with QuickBooks

Frequently Asked Questions about the tax-free threshold

QuickBooks can help you on tax time

Related Articles

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