What is the Tax Free Threshold?
The Tax Free Threshold is the amount of money you can earn before you start paying tax, and in Australia, this amount is $18,200.
Once your income increases over this threshold, tax is automatically deducted from your income each time you are paid. For example, if you earn $35,000 in the financial year, you’ll only pay tax on $16,800.
When you start a job, you’ll get a form called “Tax File Number Declaration” which will include a question about claiming the Tax Free Threshold, along with the option to tick “yes” or “no”.
Sounds easy enough – Do I just tick yes?
Unfortunately, it’s not always that simple. If you are working multiple jobs, it is vital that you only claim the Tax Free Threshold on one. This is because the amount of tax you pay is calculated using your total income in a financial year rather than what you earn at each job separately.
As a result, if you claim the Tax Free Threshold on all of your jobs, you won’t be paying the right amount of tax for your total income, leaving you with a hefty tax bill when you lodge your return.
To avoid this, it is generally recommended that you claim the Tax Free Threshold on your highest earning job. We also recommend that you request that one of your employer’s withhold a higher rate of tax to provide a safety net in case of any complications.
What do I do if I have a tax debt?
If you think you might be due to pay a tax bill at the end of this financial year, one of the best things you can do is prepare your return with a tax professional now. The sooner the better!
Remember, your tax liability is a lawful matter, and if you’re unsure on the Tax Free Threshold and how you’re currently situated, there is no one better suited to assist you than ITP Qld. Call 1300 555 773 or book an appointment today!