Published: October 2025

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The tax-free threshold is a fundamental part of Australia's income tax system, allowing individuals to earn a certain amount without paying tax. It supports low-income earners and simplifies taxation. This guide covers its basics, eligibility, and effects.

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Explaining the Tax-Free Threshold

For Australian residents, the first $18,200 of taxable income in the 2025-26 financial year (1 July 2025 to 30 June 2026) is tax-free. Income above this is taxed progressively. Employers withhold tax via PAYG, considering the threshold if claimed. If not claimed, refunds can occur at tax time. The threshold applies to earned income like wages but not to all sources, such as superannuation.

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Eligibility Criteria

• Full-Year Residents: Australian tax residents for the entire year can claim the full $18,200.
• Part-Year Residents: Eligible for a pro-rated amount: $13,464 flat plus up to $4,736 based on residency months (e.g., $13,464 + ($4,736 / 12 × months)).
• How to Claim: Tick the box on your TFN declaration form. For multiple jobs, claim from one (usually the primary) to ensure correct withholding.
• Special Cases:
  • Under 18: Eligible for earned income; unearned income (e.g., investments) may face higher rates.
  • Students and Casual Workers: Can claim if residents; no return needed if under $18,200 without other obligations.
  • Foreign Residents: Ineligible; taxed from the first dollar at 32.5%.
• If unclaimed during the year, apply it when lodging your tax return for a refund.

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Current Amounts and Tax Brackets

The threshold is $18,200 for full residents. Combined with offsets like the Low Income Tax Offset (LITO, up to $700 for incomes up to $37,500), effective tax-free income can reach around $22,575 before Medicare levy.

2025-26 Resident Tax Rates (excluding 2% Medicare levy):

Practical Implications

• Advantages: Boosts take-home pay, reduces tax for low earners, and may eliminate the need for a tax return if income is below $18,200.
• Medicare Levy: Applies at 2% on taxable income above the threshold; surcharge (1-1.5%) for high earners without private health cover.
• Multiple Jobs: Secondary jobs tax from dollar one if threshold claimed elsewhere, preventing underpayment.
• Offsets and Deductions: LITO is automatic; claim work-related deductions to lower taxable income further.
• Other Considerations: Does not affect super contributions tax (15%). Lodge returns for refunds or if required (e.g., for offsets).

Consult the ATO for personalised advice, especially for complex situations like part-year residency.

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Frequently Asked Questions (FAQ)

What is the tax-free threshold in Australia?‍

The tax-free threshold allows Australian residents to earn up to $18,200 in taxable income without paying income tax for the 2025-26 financial year.

Who is eligible for the tax-free threshold?

‍Full-year Australian tax residents qualify for the full $18,200. Part-year residents get a pro-rated amount: $13,464 + ($4,736 / 12 × months of residency).

How do I claim the tax-free threshold?

‍Declare it on your TFN declaration form with your employer. For multiple jobs, claim it only from your primary employer to avoid over-withholding.

What is the tax-free threshold for part-year residents?

‍It's calculated as $13,464 base plus a portion of $4,736 pro-rated by residency months, ensuring fair application for those not resident all year.

Does the tax-free threshold apply to students or casual workers?

‍Yes, if they are Australian residents. No tax return is needed if total income is under $18,200 and no other reporting obligations exist.

How does the tax-free threshold affect multiple jobs?

‍Claim it from one job; secondary jobs withhold tax from the first dollar, with adjustments for refunds at tax time based on total income.

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