Tax-Free Threshold: What You Need to Know
The tax-free threshold is $18,200 for the 2024-25 financial year. This means Australian residents don't pay income tax on the first $18,200 they earn each year.
When to Claim It
- One employer: Always claim the tax-free threshold
- Multiple jobs: Only claim it from one employer (usually the highest-paying one)
- Not claiming: Tax is withheld from the first dollar at higher rates. You'll get the difference back at tax time
Non-Residents
If you're a non-resident for tax purposes, you cannot claim the tax-free threshold. You're taxed from the first dollar earned at 32.5%.
Working Holiday Makers
Working holiday makers (visa subclasses 417 and 462) are taxed at a flat 15% on the first $45,000, then normal rates apply. They cannot claim the tax-free threshold.
How the Tax-Free Threshold Reduces Your Tax Bill
The $18,200 tax-free threshold directly lowers the amount of income tax you pay each year. Without it, you’d pay tax on every dollar earned — including the first $18,200 — which would significantly increase your tax liability. For example, if you earn $30,000 as a sole employee, only $11,800 ($30,000 − $18,200) is taxed at 19c per $1 (the first tax bracket). This results in a tax bill of $2,242, compared to $4,350 if no tax-free threshold applied. The threshold acts like a personal allowance, ensuring low- and middle-income earners keep more of their pay. It’s automatically applied when you claim it on your Tax File Number (TFN) declaration form (Form 3018), and your employer uses it to calculate Pay As You Go (PAYG) withholding. Importantly, the threshold is not a deduction or exemption — it simply reduces the portion of your income subject to tax.
Interaction with Other Tax Offsets and Deductions
The tax-free threshold works alongside other tax benefits, such as the Low and Middle Income Tax Offset (LMITO) and the Low Income Tax Offset (LITO), which can further reduce your final tax payable. For instance, if your taxable income is $37,500, you may be eligible for up to $700 LITO and up to $1,500 LMITO (phased out as income rises), on top of the $18,200 threshold. This can result in a tax refund even if tax was withheld during the year. Additionally, while the threshold itself cannot be claimed as a deduction, deductions (e.g., work-related expenses) lower your taxable income — the amount after the threshold has already been applied. So if your gross income is $25,000 but you claim $2,000 in deductions, your taxable income becomes $4,800 ($25,000 − $18,200 − $2,000), resulting in minimal or no tax. Understanding how these elements combine helps optimise your take-home pay and refund outcomes.
Impact on HECS-HELP Repayments
While the tax-free threshold reduces your income tax, it does not affect HECS-HELP repayment calculations. HELP debts (including HECS-HELP, SFSS, TSL) are repaid via the tax system once your annual income reaches the repayment threshold — $51,550 for 2024-25 — regardless of how much tax you actually pay. This means you could earn $50,000, claim the tax-free threshold (paying little or no tax), but still be required to make a HELP repayment on the full $50,000 if your total income exceeds the threshold. The ATO calculates repayments as a percentage of your income above the threshold (e.g., 1.0% for $51,550–$64,529), and employers withhold these amounts through payroll. It’s important to distinguish between tax liability and HELP obligations: claiming the tax-free threshold helps reduce tax, but it doesn’t reduce or delay HELP repayments, which are based on your actual earnings. Always check your MYGOV account for your current HELP balance and repayment status.