Australia's tax-free threshold is 18,200 dollars a year: the first 18,200 dollars of your income for the income year isn't taxed. You claim it through a payer, usually just one, so if you have a second job or side income on top, you can end up with a tax bill unless more tax is withheld along the way.
The threshold itself is simple. What trips people up is how it's applied through payers, especially once a second job, a pension or a side hustle under an ABN enters the picture. Here's how the ATO explains it, including its own worked example.
The tax-free threshold in one table
| Situation | What the ATO says |
|---|---|
| One job | Claim the threshold from that payer |
| Two or more payers at once | Generally claim it from one, usually the highest-paying |
| Total income from all payers will be 18,200 dollars or less | You can claim it from each payer |
| Expect over 18,200 dollars from all sources | Ask other payers to withhold at the 'no tax-free threshold' rate |
| Changed jobs | You can claim it from the new payer |
When you claim it, your payer starts withholding tax once you earn above 363 dollars a week, 726 dollars a fortnight or 1,573 dollars a month.
Why two jobs can lead to a tax bill
The threshold is a yearly amount, but payers work it out pay by pay. If two employers both apply it, each one thinks your first chunk of income is tax-free, so too little is withheld across the year. When you lodge your return, the ATO adds everything up and you may owe the difference. That's why the ATO says to claim it from one payer and ask the others to use the 'no tax-free threshold' rate. You may need a PAYG withholding variation application if you want different amounts withheld.
The ATO's own example
Jeff has a taxable pension of 384.61 dollars a fortnight, which is 10,000 dollars a year, and a part-time job paying 307.69 dollars a fortnight, 8,000 dollars a year. His total is 18,000 dollars, under the threshold. He claims the threshold on his pension, so no tax is withheld from it. If he doesn't claim it through his part-time job as well, 50 dollars a fortnight would be withheld there, which he'd get back at tax time. Because he's certain his total stays under 18,200 dollars, he can claim it from both.
The catch with side hustle income
This is the one I'd flag for anyone with a side business. The ATO counts work you do as a sole trader under an ABN as one of your income sources. But your side hustle customers don't withhold tax for you the way an employer does. So your main job uses up the threshold, and every dollar of profit from the side business is taxed at your top rate when you lodge, with nothing taken out along the way. The result is a bill that feels like it came from nowhere.
Two ways to avoid it: put a share of every side payment aside, or ask your employer to withhold a bit more through a variation so the side income is covered as you go.
No ABN? Watch for 47%
If you're doing paid work for businesses and don't give them an ABN, business.gov.au says they must withhold 47% from what they pay you for tax purposes. That isn't the tax-free threshold at work, it's a penalty rate for not quoting an ABN, and it eats into cash flow fast.
How to claim the tax-free threshold
- When you start a job, fill in a tax file number declaration from your new payer.
- Answer yes to claiming the tax-free threshold for the payer that pays you most.
- For any other payer, answer no, unless you're sure your total will be 18,200 dollars or less.
- If your income rises above 18,200 dollars later, give one payer a withholding declaration to stop claiming it there.
- Lodge your tax return; the ATO works out your total tax for the income year.
A quick self-check before tax time
Pull up your income statements in myGov or your payslips and add up every source: each job, any pension or allowance, and your side business profit. If the total is over 18,200 dollars and more than one payer applied the threshold, expect to pay something when you lodge. Better to know in March than be surprised in October.
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Changing jobs mid-year
If you leave one job for another, you can claim the threshold from your new employer even though the old one applied it earlier in the year. The ATO's example is a café worker who claimed it from July to January, then claimed it from a new graduate employer from February. The ATO sorts out the total when you lodge.
My verdict
The 18,200 dollars is generous, but it's only claimed once. If you've got more than one income stream, especially a side business, plan for the tax as you earn rather than at lodgement. For Australian creator and seller income, see AdSense payments in Australia, Payoneer in Australia and Patreon in Australia.
Frequently asked questions
What is the tax-free threshold in Australia?
18,200 dollars a year. The ATO says your payer withholds tax once you earn above 363 dollars a week, 726 dollars a fortnight or 1,573 dollars a month when you claim it.
Can I claim the tax-free threshold from two jobs?
Generally only from one payer. You can claim it from each only if you're certain your total income from all payers will be 18,200 dollars or less.
Why do I owe tax with two jobs?
If both payers applied the threshold, too little tax was withheld. The ATO adds all income together at lodgement and you pay the difference.
Does side hustle income use the tax-free threshold?
It counts towards your total income, but customers don't withhold tax for you. If a job already uses the threshold, your side profit is taxed when you lodge.
What happens if I don't give a business my ABN?
Business.gov.au says other businesses must withhold 47% from payments to you if you don't provide an ABN.
