What Is a Tax-Free Threshold And How Can I Claim It?
It is common to hear anyone complain about paying taxes. Since tax impacts heavily on your finances, you need to know how it works.
What does a Tax-Free Threshold mean?
It refers to a specific amount you can earn every year financially without paying any tax on it. In Australia, the tax-free threshold is $18,200. Therefore, if you are an Australian resident earning money in Australia, the first $18,200 you earn is completely tax-free.
What Is The Tax-free Threshold In Australia Equivalent To?
It works out to $350 every week, $700 every two weeks, and $1,517 per month. The tax system in Australia is progressive. It simply implies that the more money you earn, the more taxes you’ll have to pay. As a result, if you make more than $18,200 per year, you will be taxed in one of these categories.
What Are The Resident Tax Rates 2020- 2021?
Taxable income tax paid in this period is:
- 19 cents for each $1 above $18,200.
- $5092 plus 32.5 cents for every $1 above $45,000.
- $29,467 plus 37 cents for every $1 above $120,000
- $51,667 plus 45 cents for each $1 above $180,000.
It should be noted that these rates don’t include the Medicare levy of 2%.
If you are not a resident of Australia, you will not be able to claim the tax-free threshold. While in Australia, you must pay tax on every dollar you make.
How To Claim The Tax-free Threshold In Australia
You will be issued a tax file number declaration to fill out after starting new employment. If you wish to take advantage of the tax-free threshold, you must respond “yes” to question 9, which asks if you want to claim from that employer. The same is true for persons who receive Centrelink benefits. The tax-free level will not be used by your employer to compute your overall tax obligations. It’s critical to claim it as soon as you start a new employment on your tax file number declaration.
What Happens If I Don’t Claim The Tax-Free Threshold?
If you don’t claim the tax-free level, you’ll have to pay tax on your whole wage, even if it’s less than $18,200. As part of a tax-free threshold savings plan, some persons opt not to claim this threshold. Simply said, they will pay more tax during the year but will receive a large tax refund at the end of the year.
This strategy can be used as a forced savings option if saving money is not your strength. However, this does not always imply that you are in a worse situation. And that’s because your net salary will be lower at the end of the day. Yes, discussing a tax-free threshold isn’t all that fascinating, but it has a significant impact on your finances. Whether you claim it or not has a direct effect on the amount of tax you will pay on each dollar of your earnings. It will also have a significant influence on how much you finally receive throughout the tax term.
If you’re unclear whether or not to claim your tax threshold, consult with an Australian tax professional and resolve the matter as soon as you can. Even better, the fees you pay will be fully tax-deductible!