Part Year Tax-free Threshold for New Residents

(last updated 1/04/2014)

Every Australian taxpayer who is a resident for the full year is eligible for the tax-free threshold. The full-year tax-free threshold for 2014 is $18200. See this post for details and checklist of tax rate and income thresholds.


Where you become or cease to be a resident of Australia for "tax" purposes your tax-free threshold will be apportioned over part of the year. You can use the following method to work out the number of months that you were a "tax" resident.

Work out the number of months that you were an Australian resident for the year. This includes the first month you became a tax resident and the last month that you ceased to be a tax resident. The Australian financial year runs from 1 July to 30 June the following year. You therefore need to calculate the number of months from the month you arrived until 30 June, the end of the income year.

Your adjusted tax-free threshold will have two components:
  • The first is a flat amount of $13,464
  • The second is an additional $4736, apportioned for the number of months you have been in Australia during the income year, including the month you arrived.
Apply the number of months you were a "tax" resident over the twelve. calculate the variable amount of tax free threshold then add the fixed amount of the tax free threshold.

Example: 


John became an Australian resident on 17 April this year. This means he has been in Australia for three months in the income year. His tax-free threshold is therefore:

= $13,464 + (($4,736 x 3) / 12)

= $13,464 + $1184)

= $14,648
         

This means John will not have to pay tax on the first $14,648 of his taxable income for the income year. For any taxable income over $14,648, he will start to pay tax at the rate of 19%. The thresholds for the other tax rates will not change.

As John had a lower tax-free threshold than a resident for a full year, he will pay more tax on the same income if his taxable income exceeds $14,648. This only happens once – for each subsequent year John is a resident he will be entitled to the full tax-free threshold.

For help with your eTax return see our eTax Return Checklist.

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