Understanding the tax free threshold in Australia is important for everyone – whether you are an employee, business owner, or freelancer. It affects how much tax you pay, how much money you take home, and whether you are following the rules correctly.
In this guide, we will explain the current tax thresholds in Australia, how to claim them properly, and simple ways to avoid common and costly mistakes.
What is the Tax Free Threshold in Australia?
- Current threshold: $18,200 per year
- Applies to residents for tax purposes
- Applies to income earned between 1 July and 30 June
Current Tax Thresholds Australia (Income Tax Brackets Explained)
| Taxable Income Range | Tax Rate |
| $0 – $18,200 | 0% |
| $18,201 – $45,000 | 16% |
| $45,001 – $135,000 | 30% |
| $135,001 – $190,000 | 37% |
| $190,000+ | 45% |
Who Can Claim the Tax Free Threshold?
You can claim the AUS tax-free threshold if you are:
- An Australian resident for tax purposes
- Earning income from employment or business
- Working one or more jobs (but usually claim it from only one employer)
You cannot claim it if you are a non-resident, as they are taxed on the first dollar earned.
How to Claim Tax Free Threshold Australia (Step-by-Step Guide)
Claiming the tax-free threshold is straightforward and usually handled through your employer. You don’t need to contact the Australian Taxation Office directly, as the process is completed through a form when you start working.
Here’s a clear step-by-step guide to help you understand how it works:
Get the TFN Declaration Form
Tick ‘Yes’ to Claim the Threshold
On the TFN declaration form, you’ll be asked: “Do you want to claim the tax-free threshold from this payer?”
If this is your main job (typically where you earn the most income), you should tick ‘Yes’.
This tells your employer to:
- Apply the tax-free threshold of $18,200
- Reduce the amount of tax withheld from your pay
- Ensure you don’t pay tax on the first portion of your income
If you select ‘No’, more tax will be withheld, which may result in a larger tax refund later, but less take-home pay during the year.
Submit the Form to Your Employer
Once completed, simply submit the form back to your employer or payroll team. They will use this information to calculate your tax deductions correctly for each pay cycle.
There’s nothing else you need to do at this stage the process is handled automatically through payroll.
Update the Form if Your Situation Changes
If you change jobs, you’ll need to complete a new TFN declaration form with your new employer.
This is your opportunity to:
- Reconfirm your tax-free threshold claim
- Adjust your selection depending on your employment situation
Keeping this updated ensures you avoid incorrect tax deductions.
Important Tip: Only Claim from One Employer
If you have more than one job, you should only claim the tax-free threshold from one employer at a time – usually your primary source of income.
Claiming it from multiple employers can lead to:
- Underpayment of tax during the year
- A potential tax bill when you lodge your return
What If You’re Self-Employed?
If you’re self-employed or running a business, you don’t need to complete a TFN declaration form.
Instead:
- The tax-free threshold is automatically applied when you lodge your tax return
- Your total income is assessed by the ATO at the end of the financial year
If you’re unsure which job should claim the threshold, always choose the one where you earn the most. This helps optimise your cash flow and reduces the risk of unexpected tax liabilities.
Practical Example: How It Affects Your Pay
Let’s say:
- Annual income: $50,000
- You claim the tax-free bracket in Australia
Tax is calculated only on income above $18,200
- Taxable portion = $31,800
- You pay tax only on this portion
If you don’t claim it, your employer will withhold more tax, reducing your take-home pay.
If you’re wondering exactly how much tax applies to your income, check our guide on how much tax do I pay in Australia.
Common Mistakes to Avoid
- Claiming Threshold from Multiple Jobs: This leads to underpayment of tax and unexpected liabilities.
- Not Claiming When Eligible: You lose cash flow benefits throughout the year.
- Confusing Residency Status: Your eligibility depends on ATO residency rules, not citizenship.
Taxable Threshold vs GST Threshold in Australia
Many people confuse income tax thresholds with Australia’s GST thresholds.
Many SMEs, such as restaurants, salons, clinics, and developers, prefer to engage with tax accountants for small businesses to manage these tasks more efficiently and avoid the chance of errors.
Key Differences:
| Type | Threshold | Applies To |
| Income Tax | $18,200 | Individuals |
| GST | $75,000 | Businesses |
Final Thoughts
The tax free threshold in Australia is one of the most important fundamentals of the Australian tax system. Yet, many individuals and businesses misunderstand how it works in practice.
By applying the rules correctly, monitoring your income, and planning, you can improve cash flow, stay compliant, and avoid unnecessary tax liabilities.
Need Expert Guidance?
If you’re unsure how the tax free threshold applies to your situation, getting the right advice can help you avoid mistakes and keep more of your income.
At Befree, we’re here to help you manage your taxes with ease and confidence. Our expert team can:
- Optimise your tax position
- Ensure ATO compliance
- Help you avoid costly mistakes
Contact us today to learn more about our services and how we can support you. Getting it right now can save you significantly at the end of the financial year.
Frequently Asked Questions (FAQs)
What is the tax free threshold in Australia for 2025–26?
The tax free threshold in Australia is $18,200. This means residents can earn up to this amount each financial year without paying income tax. Any income above this is taxed based on the current tax thresholds in Australia.
Can I claim the tax free threshold from two jobs?
No, you should generally claim the tax free threshold in Australia from only one employer at a time.
If you claim it from multiple jobs, you may not have enough tax withheld and could end up with a tax bill at the end of the financial year.
What happens if I don’t claim the tax free threshold?
If you don’t claim the aus tax free threshold, your employer will withhold more tax from your salary. You can still get a refund when you lodge your tax return, but your take-home pay will be lower throughout the year.
Do non-residents get the tax free threshold in Australia?
No, non-residents are not eligible for the tax income threshold in Australia.
They are taxed on the first dollar they earn, usually at a higher rate compared to residents.
Is the tax free threshold the same as the GST threshold?
No, they are completely different:
- Tax free threshold Australia: $18,200 (individual income tax)
- Australia GST threshold: $75,000 (business turnover)
If your business earns over $75,000, you must register for GST, regardless of your personal income threshold.
How do I claim the tax free threshold in Australia?
This ensures your employer applies the correct taxable threshold in Australia to your salary.You can claim tax free threshold by completing a Tax File Number (TFN) declaration form when starting a job and selecting “Yes” to claim the threshold.