The tax-free threshold is the amount of income you can earn before you have to start paying income tax. Let’s dive into what the tax-free threshold is, how it works, and how it affects your tax obligations.
What Is the Tax-Free Threshold?
In Australia, the tax-free threshold allows individuals to earn up to $18,200 in a financial year without paying any income tax. This means that if your total income for the year is $18,200 or less, you won’t have to pay any tax on that income.The tax-free threshold applies to both full-time and part-time workers, and it’s an essential tool to reduce the tax burden for low-income earners.
How Do Tax-Free Thresholds Work?
Eligibility: Most Australian residents are eligible for the tax-free threshold. However, if you earn income from more than one job, it’s important to declare your primary job for the threshold to apply correctly.
Tax Slabs or brackets: Once you exceed the tax-free threshold, the income tax rates kick in. The rates are as follows:
Taxable Income | Tax on this income |
$0 - $18,200 | 0% (tax-free threshold) |
$18,201 - $45,000 | 19% on income over $18,200 |
$45,001 - $120,000 | $5,092 + 32.5% on income over $45,000 |
$120,001 - $180,000 | $29,467 + 37% on income over $120,000 |
$180,001 and over | $51,667 + 45% on income over $180,000 |
3. Tax Calculation: Some Examples how calculations are done:
Taxable Income | Tax Bracket | Tax Rate | Tax Calculation | Tax Payable |
$30,000 | $0 - $18,200 | 0% | $0 (no tax) | $0 |
| $18,201 - $45,000 | 19% | 19% of $11,800 ($30,000 - $18,200) | $2,242 |
| Total |
|
| $2,242 |
Taxable Income | Tax Bracket | Tax Rate | Tax Calculation | Tax Payable |
$80,000 | $0 - $18,200 | 0% | $0 (no tax) | $0 |
| $18,201 - $45,000 | 19% | 19% of $26,800 ($45,000 - $18,200) | $5,092 |
| $45,001 - $120,000 | 32.5% | 32.5% of 35,000 ($80,000 - $45,000) | $11,375 |
| Total |
|
| $16,467 |
Benefits of the Tax-Free Threshold:
Reduce tax for low-income earners: It ensures that people earning below $18,200 don’t pay income tax, making it easier to manage living expenses.
Increase take-home pay: By claiming the tax-free threshold, your employer will withhold less tax from your pay, giving you more take-home income throughout the year.
Prevent tax surprises: For those who correctly claim the threshold, it ensures that the correct amount of tax is withheld, reducing the risk of a large tax bill when you lodge your return.
Tax-free thresholds are a key factor in managing your tax obligations effectively. By understanding how they work, you can enhance your financial situation and keep more of your hard-earned money. For personalized assistance in navigating your tax strategy, reach out to us today!
For more personalized advice contact Shaun at Proactive Financial Hub.
Phone: 0424 513 740
Email: tax@proactivefh.com.au
Website: www.proactivefh.com.au
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