What is Tax-Free Threshold?

In Australia, income tax is considered as the most important technique of generating revenue within the Australian taxation system. The income tax is imposed on three primary sources of income such as for the personal earnings like salaries and wages, capital gains and sales income generated from the businesses.All together these three sources of income tax are summed up to 67% and 55% from the total revenue. This article analyzes that facts related with tax-free threshold.

Tax-Free Threshold

It means the amount of money that the government is allowing an Australian resident to earn without paying income tax. The income up to the amount of $18,200 per year is not taxed. This is known as a tax-free threshold. So in order to claim for the threshold, the tax amount is deducted from the individual’s pay during the year.

During the year (2013–2014) the tax-free threshold amount of $18,200 for pay as you go (PAYG) withholding purposes is equivalent to the earnings of $350 per week or $700 per fortnight or $1,517 per month. When the earnings are more than the tax-free threshold, the excess amount is taxed.Following table indicates the different tax rates (2012-2013) applicable for different income levels. 

Income Tax Rates (2012-2013)

income tax ratesSource: Australian Taxation Office (2012)

If a person has entered Australia permanently within the period or else left Australia within the period, or not a resident of Australia, then the tax-free threshold amount may be less than $18,200 during the financial year.

From 1 July 2012, part-year residents can access a tax-free threshold of at least $13,464. Access to the remaining $4,736 of the full tax-free threshold is pro-rated. For part-year residents, the tax-free threshold has been calculated as:

part-year residents tax-free threshold

If the company or business has many payers at the same time, the tax-free threshold is claimed from the company which pays the highest salary or wage which can be identified as the primary source of income. Also, if a personis earning additional income either from a taxable pension or from a second job, the second payer is responsible for withholding the tax at no-tax-free threshold rate. If the second payer does not withhold the tax rate, it may cause to arise a tax debt at the end of the period. However, from both these incomes, if a person does not get a total income which sum up to $18,200 then he/she can claim for a tax-free threshold from each payer.

Tax-Free Threshold | Pediaa.com

 

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