Every Australian resident for tax purposes gets the first slice of their yearly income tax-free. That slice is called the tax-free threshold, and for a full-year resident it is worth $18,200.
This guide explains what the threshold is, who gets the full amount, how it is reduced for part-year residents, why foreign residents miss out and how it works alongside the low income tax offset. It covers the 2025-26 returns being lodged now and the 2026-27 income year, and the figures were checked against the ATO tax-free threshold pages and the ATO resident tax rates.
It is written for new workers, students, migrants and anyone trying to make sense of a payslip. If you have more than one job, also read our guide on whether a second job is taxed higher.
Key takeaways
- The tax-free threshold is $18,200 for full-year Australian residents in both 2025-26 and 2026-27.
- Part-year residents get $13,464 plus a pro-rated share of the remaining $4,736.
- Foreign residents and working holiday makers get no tax-free threshold.
- Above the threshold, residents pay 16c per dollar in 2025-26 and 15c in 2026-27, up to $45,000.
- The low income tax offset (up to $700) means a full-year resident pays no income tax on taxable income up to about $22,575 in 2025-26.
- You claim it during the year through your TFN declaration, from one payer at a time in most cases.
Tax-free threshold at a glance
| Your situation | Tax-free threshold | First tax rate above it (2025-26) |
|---|---|---|
| Australian resident for the full year | $18,200 | 16c per $1 to $45,000 (15c in 2026-27) |
| Resident for part of the year | $13,464 + ($4,736 x months resident / 12) | 16c per $1 to $45,000 |
| Foreign resident for the full year | Nil | 30c per $1 to $135,000 |
| Working holiday maker | Nil | 15c per $1 to $45,000 |
Source: ATO tax-free threshold, ATO tax-free threshold for newcomers, ATO resident rates, ATO foreign resident rates and ATO working holiday maker rates, checked 9 October 2026.
What is the tax-free threshold?
The tax-free threshold is the first band of the resident income tax scale. The first $18,200 of taxable income a full-year resident earns in an income year is taxed at nil. Tax only starts on the dollars above that point.
It is not a deduction and you do not enter it as a separate claim. It is built into the resident tax rates that the Australian Taxation Office applies when it assesses your return.
During the year, it shows up in your pay. According to the ATO, the annual $18,200 is the same as about $350 a week, $700 a fortnight or $1,517 a month. When you claim the threshold on your TFN declaration, your payer uses the tax tables that build it in. The practical steps are covered in our guide on how to claim the tax-free threshold.
How does the threshold fit into the 2025-26 and 2026-27 tax rates?
The threshold is the nil band in the resident rates. The thresholds stayed the same between the two years, but the rate on the second band dropped from 16c to 15c from 1 July 2026.
| Taxable income | 2025-26 tax | 2026-27 tax |
|---|---|---|
| $0 – $18,200 | Nil | Nil |
| $18,201 – $45,000 | 16c for each $1 over $18,200 | 15c for each $1 over $18,200 |
| $45,001 – $135,000 | $4,288 + 30c for each $1 over $45,000 | $4,020 + 30c for each $1 over $45,000 |
| $135,001 – $190,000 | $31,288 + 37c for each $1 over $135,000 | $31,020 + 37c for each $1 over $135,000 |
| $190,001 and over | $51,638 + 45c for each $1 over $190,000 | $51,370 + 45c for each $1 over $190,000 |
These rates do not include the 2% Medicare levy. For more detail on each bracket, see our ATO tax rates guide for 2025-26. Our older ATO tax brackets article shows the earlier scale, which used a 19% second band before the rates changed.
Who gets the full $18,200?
You get the full threshold if you were an Australian resident for tax purposes for the whole income year. Residency for tax is not the same as citizenship or visa status. Many people on temporary visas are tax residents, and some citizens living overseas are not.
Your threshold is less than $18,200 if, during the year, you came to Australia intending to live here or left Australia intending to live overseas. In later years when you are a resident all year, the full amount applies again.
How does the part-year threshold work?
The ATO myTax instructions say a part-year resident has a tax-free threshold of at least $13,464. The remaining $4,736 is pro-rated by the number of months you were a resident, counting the month you arrived.
- Formula: $13,464 + ($4,736 x months resident / 12).
- ATO example: a person who became a resident on 17 April counts 3 months, so the threshold is $13,464 + $1,184 = $14,648.
- Other brackets: the higher tax-rate thresholds do not change. Only the nil band is reduced.
- In myTax: you enter your residency dates and myTax calculates the threshold.
Moving countries also raises other questions, such as foreign income and tax clearance. Our pages on tax clearance for migrants and expats and the foreign income tax offset cover those.
What about foreign residents and working holiday makers?
Foreign residents for tax purposes are not entitled to a tax-free threshold. They pay tax from the first dollar of Australian income. For 2025-26 the ATO lists foreign resident rates of 30c per $1 up to $135,000, then $40,500 plus 37c over $135,000, and $60,850 plus 45c over $190,000. Foreign residents do not pay the Medicare levy.
Working holiday makers on visa subclass 417 or 462 also have no threshold. Their 2025-26 rate is 15c per $1 up to $45,000, then the same higher bands as residents. On the TFN declaration form, working holiday makers and most foreign residents must answer No to the tax-free threshold question. The narrow exception is a foreign resident receiving an Australian Government pension or allowance.
How does the low income tax offset push the real tax-free point higher?
The low income tax offset (LITO) is worked out automatically when you lodge. It gives up to $700 if your taxable income is $37,500 or less, reduces by 5c per dollar to $325 at $45,000, then by 1.5c per dollar until it runs out at $66,667.
LITO is non-refundable. It can bring your tax down to nil but cannot create a refund on its own. Still, it lifts the point where a resident starts paying income tax. On 2025-26 rates, $700 covers 16% tax on $4,375 of income above $18,200, so a full-year resident with no other offsets pays no income tax up to about $22,575. On 2026-27 rates (15%) that point is about $22,866.
The Medicare levy has its own low-income thresholds. For 2025-26, a single person (not entitled to the seniors offset) pays no levy on taxable income up to $28,011, with a reduced levy up to $35,013.
Worked example: arriving in Australia part-way through 2025-26
Priya moves to Melbourne and becomes an Australian resident for tax purposes in October 2025. Counting October, she is a resident for 9 months of the 2025-26 year.
Her threshold: $4,736 x 9 / 12 = $3,552. $13,464 + $3,552 = $17,016.
Her taxable income is $40,000. Tax before offsets: ($40,000 – $17,016) x 16% = $22,984 x 0.16 = $3,677.44.
A full-year resident on the same income: ($40,000 – $18,200) x 16% = $21,800 x 0.16 = $3,488.00. The reduced threshold costs Priya $189.44 ($1,184 x 16%) before offsets and the Medicare levy are worked out in her return.
Rule of thumb: Start with your residency status, not your visa or your pay. Full-year resident means $18,200, part-year resident means a reduced threshold, and foreign resident or working holiday maker means none.
Common mistakes with the tax-free threshold
- Claiming it from two payers: unless your total income will be $18,200 or less, claim it from one payer only. Our second job guide explains the tax bill this can cause.
- Assuming a visa decides residency: tax residency follows the ATO tests, not your visa type.
- Using old rates: the 19% and 32.5% rates seen in older articles no longer apply.
- Ignoring a part-year year: new arrivals often expect the full $18,200 in their first year and are surprised by a smaller refund.
- Thinking the threshold is a refund: it only reduces tax. If no tax was withheld, there is nothing to refund. Our tax-free threshold pay guide covers refunds for low earners, and the tax return checklist helps you gather the paperwork.
FAQ about the tax-free threshold
What is the tax-free threshold in Australia for 2025-26?
The tax-free threshold is $18,200 for Australian residents who were residents for the whole 2025-26 income year. It is the same figure for 2026-27. Income up to that amount is taxed at nil, and resident rates start on the dollars above it. Part-year residents get a reduced threshold and foreign residents get no threshold at all.
Is the tax-free threshold the same as a tax deduction?
No. A deduction reduces your taxable income, while the threshold is the nil-rate band at the bottom of the resident tax scale. You do not claim it as a line item in your return. It is built into the resident rates, and ticking yes on your TFN declaration simply tells your payer to build it into your withholding during the year.
Do foreign residents get any tax-free threshold?
No. Foreign residents for tax purposes are not entitled to a tax-free threshold and pay tax from their first dollar of Australian income. For 2025-26 the foreign resident rate is 30 cents per dollar up to $135,000. Foreign residents do not pay the Medicare levy. Working holiday makers also have no threshold and pay 15 cents per dollar up to $45,000.
How is the threshold worked out if I moved to Australia during the year?
You get a flat $13,464 plus a share of the remaining $4,736 based on the number of months you were a resident, counting the month you arrived. Someone resident for nine months gets $13,464 plus $3,552, which is $17,016. myTax works this out for you once you enter the dates in your return.
Can I earn more than $18,200 and still pay no income tax?
Often, yes. The low income tax offset of up to $700 is non-refundable but can cancel out tax on income a little above the threshold. On the 2025-26 rates, a full-year resident with no other offsets pays no income tax on taxable income up to about $22,575. The Medicare levy has its own low-income threshold, which was $28,011 for singles in 2025-26.
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Talk to a registered tax agent
Not sure whether you are a resident, a part-year resident or a foreign resident for tax? The registered tax agents at Nanak Accountants can check your situation, work out your threshold and lodge your return. Call 1300 626 258 or book a discovery meeting.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO tax-free threshold, newcomers, myTax part-year threshold, resident, foreign resident and working holiday maker tax rates, low income tax offset and Medicare levy reduction pages on 9 October 2026. Rates and thresholds change, so confirm the current position before acting.
