Tax-Free Threshold Australia: Who Gets It and Who Doesn't

The tax-free threshold allows Australian tax residents to earn up to $18,200 per year without paying any income tax. It is claimed on your Tax File Number (TFN) declaration when you start a job — but working holiday makers, foreign residents, and most temporary visa holders cannot access it.

What is the tax-free threshold?

The tax-free threshold is the amount of annual income on which no income tax is payable. For the 2025–26 financial year, this amount is $18,200. Combined with the low income tax offset (LITO), the effective tax-free income level rises to $18,200 — but for practical purposes, the threshold most commonly discussed is the $18,200 figure on your TFN declaration.

If you are an Australian tax resident, you can elect to claim the threshold with your primary employer. This means tax is only withheld from income above $18,200 across the year. For a full-year worker earning $60,000, claiming the threshold results in paying tax on $41,800 rather than the full $60,000.

How does the tax-free threshold work in Australia?

The threshold is claimed on a TFN declaration form, which you complete for each new employer. Question 8 asks: "Do you want to claim the tax-free threshold from this payer?" Answer "Yes" for your main job and "No" for any secondary jobs.

Who is eligible:

Australian citizens and permanent residents who are tax residents
New permanent residents (from the date of arrival)
Some temporary visa holders who qualify as tax residents under the ATO's residency tests

Who is NOT eligible:

Working holiday makers (417/462 visa) — they pay 15% from dollar one
Foreign residents for tax purposes
Temporary residents who do not meet the ATO's residency tests
Non-residents earning Australian-sourced income

What happens if you claim the threshold but shouldn't: The ATO will calculate a tax liability at year-end and you will owe the difference. It's better to not claim the threshold and receive a refund than to claim incorrectly and face a tax debt.

Step-by-step: claiming the tax-free threshold correctly

Determine your residency status. Use the ATO's online tool or the four residency tests to confirm you qualify as a tax resident.
Complete a TFN declaration for your employer on or before your first day of work.
Answer "Yes" to Question 8 (claim the threshold) for your primary job only.
Answer "No" to Question 8 for all secondary jobs. Claiming with multiple employers causes under-withholding.
Lodge your tax return by 31 October. The ATO reconciles your actual income against the threshold and adjusts any overpayment or underpayment.
Update your declaration if your circumstances change — e.g., you stop being a tax resident, or you change your primary employer.

Common mistakes to avoid

Claiming the threshold on a second job. This causes under-withholding and a surprise tax bill at the end of the year. Only one employer at a time.
WHMs claiming the threshold. Working holiday makers are not eligible regardless of how long they have lived in Australia.
Not claiming the threshold when you are eligible. Your employer will withhold too much tax, but you will eventually get it back when you lodge your return — it just ties up your money unnecessarily.
Assuming new permanent residents must wait. Permanent residents can claim the threshold from their first day of Australian tax residency.

Frequently asked questions

Can I claim the threshold if I only work for part of the year? Yes. The threshold is an annual amount, not a per-month amount. If you earn $18,200 or less in the full financial year, you pay zero income tax. The threshold is still available to you even if you only work part of the year — you just claim it on your TFN declaration and the ATO reconciles it at tax return time.

What if I have two jobs — can I split the threshold? No. The $18,200 threshold is applied by one employer only. You nominate which employer applies it (your primary job). Your secondary employer withholds tax from the first dollar using the standard marginal rates. Your total tax liability is reconciled when you lodge your annual return.

What is the effective tax-free amount including offsets? When the Low Income Tax Offset (LITO) and Low and Middle Income Tax Offset (LMITO, if still in effect) are factored in, the practical amount of income below which you pay zero tax can exceed $18,200. For 2025–26, the LITO alone effectively extends the zero-tax band to around $18,200 (the LITO phases out at higher incomes). Always check current ATO figures as offsets change year to year.

Related calculator

See exactly how much tax you will pay at your income level, including the effect of the tax-free threshold → Income Tax Calculator