The lowest tax threshold in Australia for resident adult individuals increased from $6,000 in the 2011-12 tax year, to $18,200 for the 2012-13 financial year (commencing 1 July 2012) and following financial years.
Due to the existence of various tax offsets, the effective level of income at which tax is payable for most residents taxpayers is significantly higher than the nominal tax free threshold amount scale amount.
In 2011-12, for example, the Low Income Tax Offset effectively raises the minimum taxable threshold to $16,000. For 2012-13 and subsequent years, the tax threshold with LITO is lifted to $20,542. Tables showing the thresholds and LITO effects can be reviewed here. The resident tax scales can be reviewed here.
The range of available tax offsets can significantly lift the taxing thresholds in specific circumstances including seniors and those with large rebatable medical expenses. A listing of the more common tax offsets can be found here.
Non-resident adult individual tax scales not do not provide the benefit of a tax-free allowance, or of the Low Income Tax Offset, all tax thresholds effectively being zero. The first taxing point commences at a rate of 29% (2011-12); 32.5% in the 2012-13 and subsequent years. The upside for non-residents is not having to pay the Medicare levy. The non-resident tax scales can be reviewed here.
Resident minors taxed on “unearned” income receive the lower tax-free threshold of just $416; non-residents the threshold is zero. See Tax on Children
The tax thresholds for other entities, including companies is generally zero, with no tax free allowance. The significant exception is eligible non-profit entities which receive atax-free allowance of the first $416 of taxable profits.
Claiming The Tax Free Threshold in Your PAYG Tax Withheld
Your should be sure to claim the tax free threshold in your employer’s tax withholding calculations for each pay. Employers are required to follow the Tax Withholding declaration that employees submit to then; so if the tax free threshold is not claimed when entitled, too much tax would be withheld which would only become available as a credit, or refundable after the next annual tax assessment.
Employees can re-submit a correcting declaration if needed. Normally the tax free threshold can be claimed only once, at one job. Usually you would only claim the tax-free threshold at the job with the higher pay, to ensure the threshold allowance is maximised. A second job would then be taxed at a higher rate, to anticipate the higher level of tax needed for the end-of-year tax assessment.
Since 1 July 2012
With the increase in tax free threshold to $18,200 it is more likely than before that some employees’ total income from more than one job is under the tax free threshold.
In that case it is permissible to lodge a further declaration claiming the tax free threshold at a second job, as long as you are sure that total income will not become taxable.
If the income subsequently rises over the limit, it would be advisable to re-submit a declaration without the tax free threshold claim, to avoid or minimise any shortfall at the end of the year.
The withholding declaration form and instructions can be downloaded from the ATO here
See also: Changes in average personal income tax rates: distributional impacts (Parliamentary Budget Office)
This page was last modified on 5 August 2015