Whether you earn income in Australia from wages, salaries, profits from business, bank interest, side hustles, or returns from investments, the Australian government requires you to lodge a tax return. However, there is a tax-free threshold below which your earnings don’t incur income tax. Below, we cover everything you need to know about the tax-free threshold in Australia.
If you are an Australian resident for tax purposes, you can earn up to $18,200 a year without incurring income tax. This is known as the tax-free threshold, and you’re only required to pay income tax on earnings that exceed it.
Australia’s tax-free threshold works out to:
- $350 a week;
- $700 a fortnight;
- $1,517 a month.
If you earn less than $18,200, you’ll still need to file a tax return, but you can claim the tax-free threshold. If you paid tax during the financial year but earned below the tax-free threshold, you will be eligible to receive a tax refund. However, if you claimed the tax-free threshold but earned over $18,200, you will need to pay tax on the excess. The exact sum will be worked out on your end-of-year tax return.
Australia’s progressive tax system
Australia has a progressive tax system, which means that the more income you earn, the higher the percentage of tax you pay. If you don’t have private health cover, you will also be required to pay a 2% levy on Medicare after tax. The current tax rates for Australian residents are shown below. Note that there are different tax brackets for children, holidaymakers, and foreign residents.
Australian resident tax rates 2022 – 23
|Taxable Income||Tax On This Income|
|0 – $18,200||Nil|
|$18,201 – $45,000||19c for each $1 over $18,200|
|$45,001 – $120,000||$5,092 plus 32.5c for each $1 over $45,000|
|$120,001 – $180,000||$29,467 plus 37c for each $1 over $90,000|
|$180,001 and over||$51,667 plus 45c for each $1 over $180,000|
Can I claim the tax-free threshold on two jobs?
If you derive income from a variety of sources, you’re not alone. Plenty of Australians have two jobs or receive a pension or government allowance in combination with a part-time job. The question is, can you claim the tax-free threshold on multiple sources of income?
If you have more than one payer, the tax-free threshold can only be claimed on one job, usually from the highest salary or wage. The second payer is required to withhold tax at the higher “no tax-free threshold” rate. This may seem harsh, but it reduces your likelihood of having a tax debt at the end of the financial year. If you end up paying more tax than you needed to on your total combined income, your accountant will be able to help you ensure you get a tax refund.
What is taxable income?
Taxable income is the amount left over after you’ve factored in any tax credits you’re entitled to and deducted all relevant expenses involved in earning your income. To calculate the income you will be taxed on, you’ll need to add up your eligible claims and then subtract that amount from your income earned during the financial year. The easiest and most accurate way to do this is to use a tax calculator for the current financial year. You’ll soon see that claiming all your eligible deductions can considerably reduce your tax bill or maximise your refund. If it drops you down a tax bracket, the savings can be drastic.
How do I pay income tax in Australia?
If you work for an employer, they should automatically withhold your income tax from your wage or salary. Your employer is required to pay your tax to the Australian Taxation Office (ATO) directly each pay period through their accounting software.
If you earn an income separately from your employer, such as from bank interest, shares, property, or a side hustle, you’ll need to account for that income yourself.
Either way, you’ll need to complete an income tax return each year. Your tax agent will be able to access your income and the tax already deducted by your employer. However, you’ll need to let your accountant know if you have other streams of income. Sometimes, your employer will have paid enough tax on your behalf, and after deductions are made, you’ll still receive a tax return.
Who has to lodge a tax return?
All taxpayers need to lodge a tax return, even if they earn under the threshold. This includes:
- Australian residents whose total income exceeds the $18,200 tax-free threshold for the income year;
- Any resident taxpayer earning less than $18,200 who has had tax withheld through their job for the financial year;
- Every individual operating a business or working as a contractor, regardless of income or loss.
When do I need to lodge my tax return in Australia?
You’ll need to lodge your tax return between the 1st of July and the 31st of October (the last official day for lodgement). Extensions may be granted if you use a tax agent to lodge your return. Doing so can gain you a significant amount of extra time – up to the 15th of May in the following calendar year. Contact your nearest ITP Tax Accountant to discuss your lodgement date if you need to apply for an extension.
If you miss the tax deadline, it’s not too late – but don’t let it go on for too long. The ATO has stiff fines and penalties for late tax returns. Thankfully, working with a tax agent can help you minimise these penalties and navigate the anxiety-ridden late tax return waters.
What tax deductions can I claim?
The closer your taxable income is to the tax-free threshold, the lower your tax bill will be. So it’s a good idea to claim as many tax deductions as you legally can on expenses you have incurred for your job. Keeping good tax records and maximising your deductions can drastically reduce your income tax, and this is the reason why many Australians receive a healthy refund when they lodge their tax return.
If you have spent money to earn your income – such as purchasing and cleaning uniforms, paying for travel and meals expenses, or incurring ongoing educational expenses – you may be entitled to claim those costs as a tax deduction. Remember, you can only claim work-related expenses. Personal expenses cannot be deducted from your taxable income.
If you’re not sure what you can claim, remember that there’s a reason we call ourselves the Income Tax Professionals – your local ITP tax agent can help you work out all of your tax deductions. Our agents love the puzzle-solving aspect of finding deductions you didn’t know you could claim. So you can hand the complex task over to us, knowing you’ll get the best outcome possible.
Whether you’re planning ahead or catching up on late returns, speak with an ITP Tax Professional about your tax return today. We’ll help you sort everything out – and our fees are 100% tax deductible. Tax time can be calm instead of confusing with the help of a tax professional!