Tax is one of those things in life we just can’t avoid. Did you know the amount of tax you pay – and how much you get back in refunds – is partly determined by the tax-free threshold? Read more to learn about how the threshold affects Australian taxpayers.
What is the tax-free threshold?
The tax-free threshold is determined by the Australian Taxation Office (ATO) and indicates how much tax-free income you can earn each financial year. It only applies to Australian residents.
The current tax-free threshold is $18,200. If you earn this amount or less, you won’t need to pay tax. This amount equates to:
- $350 a week
- $700 a fortnight
- $1,517 a month
How much tax will I pay?
In Australia, the higher your income, the more tax you’ll pay. For example, someone who earns $50,000 a year will pay approximately $5,093.60 in tax, while someone earning $150,000 a year will end up paying approximately $29,478.
What is considered a taxable income or earning?
Taxable income or earnings can fall under a range of categories. These include, but are not limited to, employment and investment income, government payments and allowances, business partnership and trust income, crowdfunding, and personal services income.
How do I claim the threshold?
You’ll be pleased to know that claiming the tax-free threshold is easy! When you start a new job, you’ll be provided with a TFN declaration form. All you need to do to claim the threshold is indicate “yes” to question 9 on this form.
If you work several jobs or receive a taxable pension or government payment on top of part-time work, we recommend you only claim the tax-free threshold for the job from which you receive the highest wage and ask your other payers to increase the amount withheld from your payments. As your other sources of income will be taxed at a higher rate independent of the tax-free threshold, your chances of being overtaxed or facing a big tax bill will be greatly reduced.
You can claim the tax-free threshold from each of your payers if your total annual income sits at $18,200 or less. If your income is higher and your tax is withheld, applying for a reduction will ensure you receive extra pay instead of a big tax refund.
What if I don’t claim the threshold?
You will need to pay tax on anything you earn, regardless of the amount. While some people purposely don’t claim the threshold as a way of “forced savings” through the fact they’ll receive a bigger tax refund, this strategy does mean you’ll be financially worse off during the year.
Choose Whitson Dawson for accounting you can trust
Looking for friendly and trustworthy accountants in Mackay? Look no further than Whitson Dawson. We’re a family-owned business that prides itself on delivering outstanding services to our wide range of valued clients. From consulting and taxation advice to estate planning and auditing, you can trust us for honest, professional service exceeding expectations. Contact us today on (07) 4957 2985.