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Tax Free Threshold Is your refund smaller than last year? Do you have an unexpected amount owing to ATO? Why do I have to pay when tax rates have gone down and 1 st  $18,200 are tax free? If you answered yes to one of the above questions, you need to understand what his Tax Free Threshold and how it works. What is the tax-free threshold? If your total income for the year is in the lowest income or tax bracket, you pay no tax. Once you move out of the lowest bracket and into the next one, you have crossed the threshold from paying no tax to paying at least the lowest rate of tax. If you are an Australian resident for tax purposes, the first $18,200 of your yearly income is not taxed. This is called the tax-free threshold. Therefore, by claiming the threshold, you reduce the amount of tax that is withheld from your pay during the year. In 2015–16 the $18,200 tax-free threshold for pay as you go (PAYG) withholding purposes is equivalent to: ...