Understanding the tax-free threshold in Australia is crucial to ensuring you are not overpaying taxes.
The tax-free threshold is set at $18,200 for Australian residents, and as he said, it’s a great benefit for individuals to keep more of their hard-earned money.
Knowing how to claim and maximise this threshold can save you from unnecessary tax burdens. Below are some essential tips and steps to make the most of the tax-free threshold.
1. Claim The Tax-Free Threshold When You Start A Job
When starting a new job, you need to inform your employer that you want to claim the tax-free threshold. This is done by completing a Tax File Number (TFN) declaration form.
Steps To Claim The Tax-Free Threshold
- Complete the TFN declaration form: This form asks if you want to claim the tax-free threshold.
- Submit to your employer: Once completed, give the form to your employer, who will adjust your PAYG withholding accordingly.
- Ensure your employer knows your correct details: Double-check that you are eligible and that your details are correctly filled in.
By claiming it at the start, your employer will reduce the tax withheld from your wages, meaning more take-home pay.
2. Monitor Your Earnings Throughout The Year
It’s essential to track your income during the year to see if you’re likely to exceed the tax-free threshold.
Tips For Monitoring Earnings
- Review your payslips regularly: Keep an eye on how much tax is being withheld and your earnings to ensure your income doesn’t exceed the threshold unexpectedly.
- Use an online tax calculator: The Australian Taxation Office (ATO) provides an online tool where you can check how much tax you should be paying.
- Adjust your withholding: If you believe you will exceed the threshold, you may need to adjust your withholding rate with your employer.
Monitoring your earnings will prevent any surprises when it comes to tax time, ensuring you don’t overpay or underpay.
3. Claim Deductions And Offsets To Reduce Taxable Income
If your income exceeds the tax-free threshold, you can still reduce your taxable income by claiming various deductions and offsets. This helps lower the amount of tax you need to pay.
Common Deductions To Claim
- Work-related expenses: These include things like uniforms, tools, and travel expenses directly related to your work.
- Self-education expenses: If you’ve spent money on education to improve your skills in your job, you may be able to claim this.
- Charitable donations: Donations to registered charities may be tax-deductible.
- Home office expenses: If you work from home, you can claim a portion of your home office expenses like internet, electricity, and office supplies.
Offsets You May Qualify For
- Low-income tax offset: If your income is below a certain threshold, you might qualify for an offset that reduces the amount of tax you owe.
- Senior Australian tax offset: Seniors may be eligible for an additional offset to reduce their tax burden.
By claiming these deductions and offsets, you reduce the amount of taxable income, which can lower your overall tax liability even if you surpass the tax-free threshold.
4. Only Claim The Tax-Free Threshold From One Employer
If you have more than one job, you can only claim the tax-free threshold from one employer. Claiming it from multiple employers could result in your tax being calculated incorrectly, and you may owe money at the end of the financial year.
What To Do
- Claim the threshold from your primary job: Identify which of your jobs pays you the most and claim the tax-free threshold for that employer.
- Inform your other employers: Ensure your secondary employers know that you are claiming the tax-free threshold with your primary employer.
- Check your PAYG withholding: Ensure that tax withheld from your other jobs is calculated based on a higher rate since you are not claiming the tax-free threshold there.
This ensures you don’t end up with a tax bill at the end of the year due to overclaiming the threshold.
5. Keep Your Personal Information Up To Date With The ATO
To claim the tax-free threshold, you need to ensure that your personal information is up to date with the ATO. This includes your residency status, income details, and any changes to your situation.
Steps To Keep Your Information Updated
- Notify the ATO of changes: If your situation changes (such as moving interstate or a change in your employment status), inform the ATO.
- Check your residency status: If you are unsure about your residency status for tax purposes, confirm it with the ATO.
- Ensure your TFN is registered: Your Tax File Number (TFN) is essential for your tax records and claims, so make sure it’s up-to-date.
Keeping your information current will avoid delays or complications in your tax filing and ensure you’re eligible for the tax-free threshold.
6. Seek Professional Tax Advice If You Are Unsure
If you’re new to the tax system or if you have complex circumstances (such as having multiple jobs or being self-employed), it can be beneficial to seek professional help.
A tax professional can guide you in claiming the tax-free threshold properly and can help you maximise any tax deductions or offsets available to you.
Benefits Of Professional Advice
- Clarify your eligibility: A tax professional can explain the rules around the tax-free threshold and help you understand if you’re eligible.
- Maximise your tax benefits: They can help identify additional deductions or offsets that may be available to you.
- Prevent errors: An expert can ensure that you don’t accidentally overpay tax or fail to claim the tax-free threshold correctly.
Hiring a professional may cost you initially, but it can save you time and money in the long run.
7. Consider Using The ATO’s Online Tools
The Australian Taxation Office offers several online tools that can help you manage your tax-free threshold effectively. These tools allow you to track your tax obligations and ensure you’re claiming the correct amount.
Key ATO Tools
- ATO tax calculator: This tool can help you estimate your tax liability based on your income, deductions, and offsets.
- MyTax: ATO’s online tax return platform allows you to lodge your tax return and claim any relevant deductions and offsets.
- Superannuation calculator: Use this to calculate how much superannuation you should be receiving from your employer.
By using these tools, you can get a clear picture of your tax situation and avoid surprises at the end of the year.
8. Review Your Tax Return After Submitting It
Once the financial year ends, it’s important to file your tax return. Even though you may have claimed the tax-free threshold throughout the year, you should review your tax return to ensure everything is accurate.
Things To Check On Your Tax Return
- Ensure all income is reported: Double-check that all your income sources are included in your return.
- Review deductions and offsets: Make sure any deductions or offsets you’ve claimed are valid and correctly listed.
- Compare your PAYG withholding: Compare the tax withheld on your payslips with the amount reported on your tax return.
This ensures that you’ve paid the correct amount of tax and may even entitle you to a tax refund if you’ve overpaid.
Conclusion
The tax-free threshold is a great way for Australian taxpayers to reduce their tax burden and keep more of their income.
By following the steps outlined, you can ensure that you claim the tax-free threshold correctly and avoid overpaying tax.
Be proactive by monitoring your income, claiming deductions, and using available resources to manage your tax obligations effectively.
Frequently Asked Questions
What Happens If I Don’t Claim The Tax-Free Threshold?
If you don’t claim the tax-free threshold, your employer will automatically withhold tax at a higher rate. You may receive a refund when you file your tax return if too much tax was withheld.
Can I Claim The Tax-Free Threshold If I Work Part-Time?
Yes, you can claim the tax-free threshold if you work part-time, as long as your income doesn’t exceed $18,200. If you earn more, the tax-free threshold will still apply to the first $18,200 of your earnings.
How Do I Know If I’m A Resident For Tax Purposes?
To be considered an Australian resident for tax purposes, you must meet certain conditions such as residing in Australia for a substantial period, having a permanent place of abode, or showing your intention to stay in the country.
You can check the ATO website for more detailed information on residency rules.