Before submitting a tax return, you must be well aware of your income that is exempt from taxation. This blog will help you learn about the fundamentals of tax-free thresholds. The term ‘tax-free threshold’ indicates an annual income of an individual that doesn’t require them to pay tax on it. Even though not everyone has to worry about taxes if they have enough knowledge regarding tax matters and possible concessions or deductions they are liable to claim. In this blog post, we’ll shed light on the tax-free threshold and other aspects related to it.
What is tax free threshold?
The tax-free threshold refers to the income amount that you earn before paying tax. Many Australian residents are liable to claim a tax-free threshold on the first $18,200 of the income they receive in the income year. When you claim a tax-free threshold, the amount of tax withheld from your income will be reduced. For any kind of tax matters or tax return lodgment services, it’s suggested to consult an experienced tax return accountant. The tax-free threshold is equal to earning:
- $350 a week
- $700 a fortnight
- $1,517 a month.
What happens if I don’t claim the tax free threshold?
If you decide not to claim the tax-free threshold, your employer will deduct tax from your wages at a higher rate. This could lead to you paying more tax than required over the year, resulting in reduced take-home pay and potentially affecting your cash flow. If you forget to claim a tax-free threshold, all is not lost. When you file your annual tax return, you can claim back any excess tax paid.
Do I say yes or no for tax-free threshold?
You have the option to either claim or not claim the tax-free threshold on the Tax File Number (TFN) declaration you submit to your payer (including Centrelink). To handle all tax matters, you may need an individual tax return accountant.
If you decide to claim it:
- You won’t pay tax if your income is below $18,200.
- Your payer will withhold tax once your income exceeds $18,200.
Am I Eligible for the Tax-Free Threshold?
To qualify, you need to meet these requirements:
- Be considered an Australian resident for tax purposes
- Have taxable income
If you’re uncertain about your residency status or income, it’s best to consult the Australian Taxation Office (ATO) or a registered tax agent for assistance.
When to claim tax free threshold?
The tax-free threshold is the amount of income you can earn without having to pay taxes. Most Australian residents can claim the tax-free threshold on the first $18,200 of their income for the year. If you earn more than $18,200, ensure to consult a tax return accountant in Melbourne.
If you receive income from multiple sources at the same time, you can usually only claim the tax-free threshold from one payer. Typically, you claim it from the payer who provides the highest salary or wage.
You might receive income from more than one payer if you:
- Have a second job or multiple jobs
- Have a regular part-time job and also receive a taxable pension or government allowance
- Work under an ABN as a contractor, sole trader, or in another business structure.
Impact of the tax-free threshold on your tax return
It’s crucial to understand how offsets and deductions work to know the impact on your tax return. It will allow you to increase your benefits alongside the tax-free threshold. Claiming allowable deductions minimises your taxable income, thus reducing the tax amount you need to pay. To increase your tax return benefits, you need to maintain records of all income and expenses to ensure you are liable to claim all potential offsets and deductions. Make sure to check the fees of a tax return accountant. Tax return accountant fees may vary from one place to another.
Conclusion
Now, it’s clear when you are liable to pay tax and when you don’t need to pay. You can speak to Reliable Melbourne Accountants to deal with tax matters easily. Get in touch with us to learn more about tax thresholds.