The tax-free threshold is the amount of income that you don’t have to pay tax on. To get technical, it’s the upper limit of the lowest tax bracket, which has a rate of 0%.
What this means is that if all of your income is below this level, you don’t have to pay any tax, and even if your income is above the threshold, you don’t have to pay tax on that portion that falls below it.
Last year during the 2011-2012 financial year the threshold was $6,000. Recently, however, in its most recent budget, the Government more than tripled the threshold to $18,200 for the 2012-2013 financial year and beyond.
Divided by 52, last year’s threshold breaks down into $115 a week. That’s an extra $230 that stayed in your paycheck every fortnight.
For this year, it breaks down into $350 a week and $700 left in your paycheck every fortnight. That’s quite a bit of savings!
How to claim the tax-free threshold
In order to receive the benefits of the tax-free threshold, you must be sure to claim it when you start receiving money from a payer (including Centrelink). You will need to fill out a Tax File Number Declaration and when you do, you should mark “Yes” in answer to question 8, “Do you want to claim a tax-free threshold from this payer?”
You can only claim it from one payer and you should claim it from the one who pays you the most money. Claiming the threshold from more than one payer will only increase your tax troubles, as not enough money will be withheld over the course of the year and you’ll be stuck with a massive bill come tax time.
Entering and Leaving Australia
Generally speaking, all residents can claim the standard tax-free threshold and no threshold is available to nonresidents. But things get a little more complicated when it comes to people who either enter or exit Australia permanently during the financial year.
If this is the case, you will be taxed as a resident, and you will still get a tax-free threshold, but it will be less than the standard amount. Your threshold will be pro-rated based on the number of weeks you were in the country as a resident.
Let’s say, during 2011-2012, you were an Australian resident for only 10 weeks. That means you take the weekly tax-free threshold rate of $115 and multiply it by 10 to get your individual threshold of $1,150. Similarly if you are only a resident for 10 weeks of the 2012-2013 year, multiple the weekly rate of $350 by 10 to get your tax-free threshold of $3,500.