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What does the tax free threshold mean in Australia?

Ever wondered how much you have to earn before you get taxed? The tax free threshold is the amount of money you can earn up to each financial year without having to pay any tax to the ATO. This means if your total income is less than the tax free threshold, you don’t owe the government any money. 

Your total income can be any money you’ve earnt for the year, including all jobs and side jobs, interest collected from bank savings, as well as any income from investments.

What is the tax free threshold for 2021?

The tax free threshold is $18,200 for 2021. This means if you’re an Australian resident for tax purposes, how much you can earn before you pay tax is $18,200. The same tax rate applies to overdue returns from 2017 to 2020. 

Income Tax Brackets 2020 – 2021

Total Taxable IncomeTax Rate
0 – $18,200Nil
$18,200 – $45,00019 cents for each $1 over $18,200
$45,001 – $120,000$5,092 plus 32.5 cents for each $1 over $45,000
$120,001 – $180,000$29,467 plus 37 cents for each $1 over $120,000
$180,001 and over$51,667 plus 45 cents for each $1 over $180,000

*Above rates do not include the Medicare levy of 2%.

(source: Australian Taxation Office – ATO)

How to claim the tax free threshold?

Claiming the tax free threshold is fairly simple. When starting a new job or applying for new centre link payments, you’ll be provided a Tax File Number Declaration form to complete. Simply answer ‘Yes’ to the question that says ‘Do you want  to claim the tax free threshold from this payer?

What happens if you don’t claim the tax free threshold? 

If you choose not to claim the tax free threshold at all for the financial year, then you may pay tax on all the income you received for the year. This could result in you paying a lot more tax than you really need to. 

But not to worry, the ATO will return any overpaid tax back to you in your tax refund once you lodge your Tax Return. That said, your pay slips may seem a little under as you will be paying more upfront tax during the year. 

How to change the tax free threshold with my employer?

You have the option to reduce how much tax gets taken out of your pay at any given time by filling out a PAYG Withholding Variation Application form.

Can you claim the tax free threshold on a second job?

Generally speaking, you can only claim the tax free threshold on one job at a time. The ATO states that in the case of people with multiple income sources in the same financial year, you onl;y require to claim the tax free threshold from the payer who pays the highest salary or wage. 

Do you need to lodge a Tax Return if your income is under $18,200?

Best practice — yes. You are still required to lodge a Tax Return even if your income is under the threshold. If your employer had withheld tax, you would be able to claim the full amount of withheld tax as a refund. However, even if you did not have any tax withheld (and no refund), you are still legally required to lodge a Tax Return. This is known as a Return not Necessary (RNN). 

With One Click Life, RNN’s are free to lodge and make Tax Returns online quick and easy. Best of all? This service is TOTALLY FREE! 

If your RNN is for a year earlier than 2017, you will need to contact us by calling 1300 707 117 or email hello@oneclicklife.com.au for more information. 

Follow these 4 simple steps to lodge your 2021 Tax Return fast and easy

Lodge your individual Tax Return by yourself using One Click Life’s online tax process, which is quick and simple to use, and gives you peace of mind of having your tax refund double checked by our numbers geeks before it is lodged. 

  1. Get your TFN and ID ready. This will help One Click Life pre-populate your income details. 
  2. Login or register at oneclicklife.com.au/register and get started on your 2021 Tax Return. You don’t have to worry about your payment summary, income statement, or group certificate — we’ll automatically get it for you from the ATO.
  3. A list of pre-populated deductions related to your occupation are automatically suggested. Simply click the Add button to add deductions that apply to you.
  4. Review your calculated tax refund and hit the lodge button and that’s !

For Return not Necessary lodgements

  1. Get your TFN and ID ready. This will help One Click Life pre-populate your income details. 
  2. Login or register at oneclicklife.com.au/register and get started by selecting the year you want to complete your Tax Return. You don’t have to worry about your payment summary, income statement, or group certificate — we’ll automatically get it for you from the ATO.
  3. Review your calculated tax refund and then hit lodge! The system will calculate an estimated refund/payable for you to review. Fortunately, the system will then tell you that you don’t have tax this year. Your RNN is now lodged to the ATO.

What happens next?

Our qualified tax accountants will review your Tax Return one last time to make sure everything is correct so you aren’t bothered by the ATO. If something isn’t right, we’ll get in contact with you immediately. And that’s it! It’s as simple as that. 

You can now see why 98.1% of our customers love using One Click Life to do online Tax Returns in Australia. 

Need help? Check out our guide on how to lodge your Tax Return online in minutes.

How To Tax – One Click Life