A New Tax-Free Threshold Changes Tax Rates in Australia for 2012
Starting 1 July 2012, the tax-free threshold has been increased from $6,000 to $18,200. This is good news for everyone at the lower end of the income spectrum. It may be less welcome by those at the top, however, as rates in the upper brackets have been somewhat increased in order to compensate for the change.
What is the tax-free threshold, you ask? It's the amount of your income that is exempt from tax. That means that this year, given the new threshold, you won't owe the ATO anything on the first $18,200 of your income. For a slightly more technical explanation, the threshold marks the top of Australia's lowest income tax bracket. This bracket has a tax rate of 0%. So, if all of your income falls into this first bracket (below the threshold) you don't owe any tax. If not, you only start paying tax once your income enters the second bracket.
It may be tempting to dismiss all this talk about the threshold as a boring tax abstraction, but actually it has a very real impact on your daily life because it determines how much money is withheld from your paychecks. So pay attention!
For the 2011-2012, the tax-free threshold amounted to $115 a week, which means that $230 stayed in your paycheck every fortnight that would otherwise have been deducted. For 2012-2013 it's even more, amounting to $350 every week - $700 in your paycheck every fortnight.
How to claim the threshold
In order to receive the benefits of the threshold, you must remember to claim it from your employer. Otherwise taxes will be withheld at a rate that's too high. And while it's fun to get a big refund back from the ATO at the end of the financial year, it's even better to have that money all year long.
When you start receiving money from a new payer - such as a new job or Centrelink - you need to fill out a Tax file number declaration (NAT 3092). On this form you should mark the "Yes" box next to question 8, "Do you want to claim the tax-free threshold?"
If you have more than one payer, you can only claim the threshold from one of them. Otherwise not enough taxes will be withheld from your paychecks over the course of the year and you'll be forced to pony up quite a bit come tax time. Generally, the best policy is to claim the threshold from the payer who gives you the most money.
Residency status and the tax-free threshold
The full $18,200 threshold only applies to Australian residents. If you're a nonresident you're out of luck: you are taxed on all of your income.
The tricky part is if your residency status changes part way through the financial year, for example if you become a resident or leave Australia, you will still get a tax-free threshold, but it will be less than the full amount.
The threshold for part-year residents is based on the number of weeks they were Australian residents. For example, if you are a resident for only 10 weeks of the 2012-2013 financial year, your tax-free threshold would be 10 x $350 = $3,500.
The threshold can make a big difference in terms of how you are taxed, so be sure to pay attention when you lodge your taxes.
What is the tax-free threshold, you ask? It's the amount of your income that is exempt from tax. That means that this year, given the new threshold, you won't owe the ATO anything on the first $18,200 of your income. For a slightly more technical explanation, the threshold marks the top of Australia's lowest income tax bracket. This bracket has a tax rate of 0%. So, if all of your income falls into this first bracket (below the threshold) you don't owe any tax. If not, you only start paying tax once your income enters the second bracket.
It may be tempting to dismiss all this talk about the threshold as a boring tax abstraction, but actually it has a very real impact on your daily life because it determines how much money is withheld from your paychecks. So pay attention!
For the 2011-2012, the tax-free threshold amounted to $115 a week, which means that $230 stayed in your paycheck every fortnight that would otherwise have been deducted. For 2012-2013 it's even more, amounting to $350 every week - $700 in your paycheck every fortnight.
How to claim the threshold
In order to receive the benefits of the threshold, you must remember to claim it from your employer. Otherwise taxes will be withheld at a rate that's too high. And while it's fun to get a big refund back from the ATO at the end of the financial year, it's even better to have that money all year long.
When you start receiving money from a new payer - such as a new job or Centrelink - you need to fill out a Tax file number declaration (NAT 3092). On this form you should mark the "Yes" box next to question 8, "Do you want to claim the tax-free threshold?"
If you have more than one payer, you can only claim the threshold from one of them. Otherwise not enough taxes will be withheld from your paychecks over the course of the year and you'll be forced to pony up quite a bit come tax time. Generally, the best policy is to claim the threshold from the payer who gives you the most money.
Residency status and the tax-free threshold
The full $18,200 threshold only applies to Australian residents. If you're a nonresident you're out of luck: you are taxed on all of your income.
The tricky part is if your residency status changes part way through the financial year, for example if you become a resident or leave Australia, you will still get a tax-free threshold, but it will be less than the full amount.
The threshold for part-year residents is based on the number of weeks they were Australian residents. For example, if you are a resident for only 10 weeks of the 2012-2013 financial year, your tax-free threshold would be 10 x $350 = $3,500.
The threshold can make a big difference in terms of how you are taxed, so be sure to pay attention when you lodge your taxes.
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