If you’re an Australian resident for tax purposes, you can earn $18,200 in a financial year before you owe any income tax. That figure is the Australian tax-free threshold, and it works as a zero-rate first bracket in the resident tax scale. Because the Low Income Tax Offset then wipes out the small amount of tax that would apply just above it, most residents don’t actually owe anything until their income passes $22,575 in the 2025–26 income year.1Australian Taxation Office. Low Income Tax Offset
What Happens Once You Earn More Than $18,200
Only the income above $18,200 is taxed, and it’s taxed at the rate for the bracket it falls into. The full resident scale for 2025–26 looks like this:2Australian Taxation Office. Tax Rates – Australian Resident
- $0 – $18,200: no tax.
- $18,201 – $45,000: 16 cents for each dollar over $18,200.
- $45,001 – $135,000: $4,288 plus 30 cents for each dollar over $45,000.
- $135,001 – $190,000: $31,288 plus 37 cents for each dollar over $135,000.
- $190,001 and over: $51,638 plus 45 cents for each dollar over $190,000.
A 2% Medicare levy sits on top of these rates for most residents, so the real marginal rate in each bracket is a little higher than the headline figures.2Australian Taxation Office. Tax Rates – Australian Resident
Why the Effective Threshold Is $22,575
The Low Income Tax Offset is a non-refundable credit the ATO applies automatically when you lodge your return. For 2025–26, the maximum offset is $700, available to anyone with taxable income of $37,500 or less.1Australian Taxation Office. Low Income Tax Offset
At the 16-cent marginal rate that applies just above $18,200, $700 of offset cancels out all the tax on income up to $22,575. That’s why $22,575 is the point where a resident with no other offsets first owes a net amount. You don’t apply for LITO separately; it appears on your notice of assessment.
The offset then tapers as income rises. Between $37,501 and $45,000, LITO reduces by 5 cents for every dollar above $37,500. Between $45,001 and $66,667, the remaining $325 reduces by 1.5 cents per dollar, hitting zero at $66,667.1Australian Taxation Office. Low Income Tax Offset
Higher Effective Threshold for Seniors and Pensioners
Eligible seniors and pensioners can earn considerably more before tax is payable. The Seniors and Pensioners Tax Offset stacks on top of LITO, and together the two offsets lift the effective threshold well above $22,575.3Australian Taxation Office. Seniors and Pensioners Tax Offset
For 2025–26, a single person receives the maximum SAPTO with rebate income below $34,919. The offset then phases out at 12.5 cents per dollar above that figure, cutting out at $52,759. For couples, each partner’s shading-out threshold starts at $30,994, with a cut-out at $43,810.3Australian Taxation Office. Seniors and Pensioners Tax Offset
SAPTO eligibility also raises the Medicare levy low-income cut-in. For 2024–25, the levy doesn’t start until $43,020 for a single person entitled to SAPTO, compared with $27,222 for other taxpayers.4Australian Taxation Office. Medicare Levy Reduction for Low-Income Earners
Who Qualifies as an Australian Resident for Tax Purposes
The threshold only applies if the ATO treats you as an Australian resident for tax purposes. Residency here isn’t about citizenship or visa type; it’s decided by four tests, and passing any one of them makes you a resident.5Australian Taxation Office. Residency – The Domicile Test
- Resides test: you ordinarily reside in Australia based on your behaviour and circumstances.
- Domicile test: your domicile is in Australia, unless you can show your permanent home is overseas.
- 183-day test: you were physically present in Australia for 183 days or more in the income year, unless your usual home is abroad and you don’t intend to live here.
- Superannuation test: you’re an Australian Government employee posted overseas and a member of a Commonwealth super scheme.
Permanent residents, citizens living abroad, and temporary visa holders can each fall on either side of these tests depending on their actual living arrangements.
No Tax-Free Threshold for Foreign Residents or Working Holiday Makers
If you don’t pass any of the residency tests, you’re a foreign resident for tax purposes and receive no tax-free threshold. Tax applies from the first dollar of Australian-sourced income, at 30 cents in the dollar up to $135,000, then 37 cents to $190,000, then 45 cents above that.6Australian Taxation Office. Tax Rates – Foreign Resident Foreign residents don’t pay the Medicare levy.
Working holiday makers on subclass 417 or 462 visas are taxed under their own scale. A registered employer withholds 15% on the first $45,000 of earnings, with higher rates above. Working holiday makers also get no tax-free threshold.7Australian Taxation Office. Working Holiday Makers
How to Claim the Threshold
You claim the tax-free threshold on the Tax File Number declaration form your employer gives you when you start a new job. Question 9 asks whether you want that employer to apply the threshold when working out how much PAYG tax to withhold from each pay.8Australian Taxation Office. Tax File Number Declaration
Answer yes, and the employer treats the first $18,200 of your annual pay from that job as untaxed, spreading the benefit across your pay cycles. If you never hand in a completed form, the employer must withhold at the top marginal rate on every payment until you do.
If You Have More Than One Job
When you work two or more jobs at the same time and expect your combined income to exceed $18,200, claim the threshold from only one employer, usually the highest-paying one. On each other TFN declaration, answer Question 9 so that employer withholds at the “no tax-free threshold” rate.9Australian Taxation Office. Multiple Jobs or Change of Job
If two employers both apply the threshold, each withholds as though you earned only what they paid you. Not enough tax comes out during the year, and the shortfall turns into a debt at tax time. Withholding at the higher rate on secondary income keeps you closer to the right total.
The exception: if you’re confident your total earnings from all jobs will stay at or below $18,200 for the year, you can claim the threshold from every employer. If that changes, give one of them a withholding declaration telling them to stop applying it.9Australian Taxation Office. Multiple Jobs or Change of Job
Part-Year Residents Get a Reduced Threshold
If you became an Australian resident partway through the financial year, or left permanently before the year ended, your tax-free threshold is scaled down. You get a base of $13,464 plus a variable portion calculated as $4,736 multiplied by the number of months you were a resident and divided by twelve.10Australian Taxation Office. Part-Year Tax-Free Threshold
Someone who arrived in January and was a resident for six months would receive $13,464 plus ($4,736 × 6 ÷ 12), which comes to $15,832. That’s lower than the full $18,200, so the 16-cent marginal rate begins earlier in the income year. You report the adjustment on your tax return, and the ATO uses it to recalculate the year’s liability.11Australian Taxation Office. Tax-Free Threshold for Newcomers to Australia