Is It Illegal to Claim 2 Tax Free Thresholds from 2 Jobs (Earning over Tax Free Threshold)

backno67 on 28/12/2015 - 12:45

I know that claiming two tax free thresholds from two different employers will create a tax debt at the end of the financial year (both incomes should total between $65,000 to $75,000). However, if this tax liability is set aside and is earning interest in a savings account throughout the year, wouldn't this be better than paying tax as you go? I also know that I would have to pay tax on the interest that is gained on this tax liability, but this is only a fraction of the interest gained, not all the interest.

However, I am wondering about the legal ramifications of this? Does anyone else do this in purpose? If not, why not? It does seem like an easy way to make extra dollars if you you are disciplined enough to set aside your tax liability.

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Comments

  • ozhunter on 28/12/2015 - 12:58
    -6

    Probably. If you can't pay that tax debt when it's due and they find out you claimed the tft twice, you'd likely get penalised of something. Just a guess.

  • PissLUR on 28/12/2015 - 13:00

    Its Ok. I prefer to do it this way as you are mostly keeping your own money and not ATO.

  • [Deactivated] on 28/12/2015 - 13:22
    +19

    It's not illegal. You might have a tax debt at the end of the year (as opposed to a refund) but it is most definitely not against the law, and you won't be fined.

    if you you are disciplined enough to set aside your tax liability.

    This is the main point. As long as you are aware that you might have a debt come tax time it's perfectly okay to claim the threshold as many times as you'd like.

    In fact, contrary to popular belief, I believe that a tax debt is much better than a tax refund. In the latter the ATO would've held onto your money, which they merely return interest free.

    Whereas if you have a tax debt, you've essentially had an interest free loan from the government to do whatever you want with it, and that 'loan' would be payable when you do your tax.

    Simples.

    • [Deactivated] on 29/12/2015 - 09:49

      What happens if you bank goes under?

      • blahbleh on 29/12/2015 - 10:00
        +1

        Unless you had a tax debt more than $250,000, you're probably going to be fine.

        In any case, I don't think that it's a particularly common occurrence in Australia at the moment.

      • Deridas on 29/12/2015 - 10:26
        +2

        There's a government guarantee for bank deposits, you're safe if it goes under ;)

        • [Deactivated] on 29/12/2015 - 22:49

          Only the big 4 and only because of the levy :P. At least I think so.

        • Cyphar on 30/12/2015 - 18:31

          EDIT: Nevermind. Incorrect info

  • Jemz on 28/12/2015 - 13:22

    Ring the ATO with a what if scenario, surely they'll be able to tell you

  • shaz0316 on 28/12/2015 - 13:23
    +1

    None, as long as you pay the correct amount of tax when you finally do your tax return. PAYG is an option of tax payment not a necessity, but is the option most businesses use.

    • [Deactivated] on 28/12/2015 - 13:30
      +3

      It could be a necessity if you are an individual with an unusually large tax debt and you are automatically assigned to PAYG by the ATO.

  • [Deactivated] on 28/12/2015 - 14:31
    +3

    From the ATO website

    If you are an Australian resident for taxation purposes, the first $18,200 of your yearly income is not taxed. This is called the tax-free threshold. If you have more than one payer at the same time, we generally require that you only claim the tax-free threshold from the payer who usually pays the highest salary or wage (this is known as your primary source of income).

    • [Deactivated] on 28/12/2015 - 15:13
      +5

      we generally require

      Great :) so there's no law prescribing the use of the TFT.

  • spockter on 28/12/2015 - 15:37
    -2

    However, if this tax liability is set aside and is earning interest in a savings account throughout the year, wouldn't this be better than paying tax as you go? I also know that I would have to pay tax on the interest that is gained on this tax liability, but this is only a fraction of the interest gained, not all the interest.

    From
    https://www.ato.gov.au/Rates/General-interest-charge-(GIC)-rates/

    current interest rate you will pay for the unpaid tax is 9.22%

    You won't be getting that rate from a savings account. To come out ahead you would have to rely on the ATO not backdating the interest owed as far back when you received the income.

    • whooah1979 on 28/12/2015 - 16:08
      +2

      op doesn't need to worry about gic as long as op pays tax on time.

    • [Deactivated] on 28/12/2015 - 16:25
      +2

      ATO will never apply GIC from when you receive income. GIC is effectively a penalty for not paying your tax liabilities by a due date, and only applies for the period between the due date and the date when payment is received by the ATO, provided the payment received date is later than the due date.

  • t_c on 28/12/2015 - 16:15

    Is it possible to opt out of employer payg and just pay what's owed at end of year?

    • [Deactivated] on 28/12/2015 - 16:29
      +1

      Not sure what you mean by employer PAYG, but assuming you mean ATO PAYG the answer is no. If the ATO deems you eligible for PAYG you must pay it quarterly (or annually on the first PAYG due date following the date of your NOA).

    • SimbaGirl on 28/12/2015 - 17:29
      +2

      If you mean as an employee, can you "opt out" of your employer withholding PAYG (tax) from your pay, then no - as far as I'm aware it's a legal obligation for employers to withhold PAYG from salary/wages paid to employees and meet the reporting and payment requirements for same to the ATO.

  • Baysew on 28/12/2015 - 17:20
    +1

    From ATO Witholding Declaration

    The tax laws impose heavy penalties for giving false or misleading statements.
    I declare that the information I have given on this form is true and correct.

    • backno67 on 28/12/2015 - 19:17

      Fair enough, that's a good point. I did get that casual job before the full time job, so I did not give false or misleading statements at the time of filling out the form. But I can see that I'd probably be expected to do an amendment.

  • SimbaGirl on 28/12/2015 - 17:47
    +2

    For the OP, it might be worth keeping in mind that if you earn over a certain threshold (currently $4000) in investment income e.g. interest from bank accounts, and have a tax bill of more than $1000 for the same financial year, the ATO is likely to hit you up for individual PAYG instalments based on the amount of tax they estimate you will be liable for the following year. These instalments usually have to be paid quarterly by you directly to the ATO - any PAYG paid by your employer doesn't count towards the instalment. I was hit with this a few years ago when interest rates on deposits were still reasonably high - the following year the interest rates were dropping and after some big expenses on house renovations etc I had less money in in the bank anyway, so my tax liability the following year was way below the amount the ATO had estimated, so I got a refund in the end - but I still had to pay all the instalments to them in the first place! In these situations, if you think your income is going to be less than their estimate, you can apply to vary the instalment amounts but woe betide you if you get it wrong and underestimate the tax payable, the ATO does not look kindly on that at all.

    • DeafMutePretender on 28/12/2015 - 18:45

      currently $4000

      is that yearly?

      • SimbaGirl on 28/12/2015 - 19:25

        Yes, that's for the financial year. At least they've increased the threshold now, previously it was only $2000. Used to be called "provisional tax" (a term many people still use) but nowadays the ATO refers to it as PAYG instalments.

    • backno67 on 28/12/2015 - 19:19

      thanks for that information, atm I'm pretty far away from that in terms of investment income but will come in handy to know for the future.

      • SimbaGirl on 28/12/2015 - 19:28

        Oh well, at least you'll dodge that tax bullet anyway!

      • nikey2k27 on 29/12/2015 - 10:17

        Done went was work 4 different jobs you get TAX debt you have to pay.

  • AMLagonda on 28/12/2015 - 18:24

    I didn't think that your employer has to pay your taxes, but that would mainly be contract workers with an ABN but it would be up to you to pay the big bill at the end of the year, or pay quarterly.

    • [Deactivated] on 28/12/2015 - 18:47

      Who did you think paid your income tax? The tooth fairy?

      • bargainslut on 28/12/2015 - 19:16
        +5

        Drew22

        The tooth fairy's job is to replace teeth that have been placed under pillows with cold hard cash.
        They should not be dabbling with income tax, this should be left to accountants and other savvy number crunchers.

    • [Deactivated] on 28/12/2015 - 19:36

      I didn't think that your employer has to pay your taxes

      So… Who does?

    • AMLagonda on 28/12/2015 - 21:15

      I think I wrote that "statement" wrong lol not really what I meant….

  • SaberX on 28/12/2015 - 19:14

    As an accountant you are generally meant to claim one tax free threshold. The number of concerning statements made above by the general populace is concerning, please dyor or speak to a qualified persons for advice if in doubt to ensure you aren't hit for doing the wrong thing (which many of the above seem to lead towards)

    • whooah1979 on 28/12/2015 - 19:24
      +1

      is op violating any tax laws by claim more than one tax-free threshold?

      • gimli on 28/12/2015 - 21:28
        +2

        he may not be violating tax law.

        But on the form to apply for tax free treshold I'm pretty sure you tick a box to claim that you are not claiming treshold on another income.

        Hence you would be lying on the form as mentioned above.

        It is not the same as breaking tax law or tax evasion but it is still potentially penalisable.

        • [Deactivated] on 29/12/2015 - 00:01

          I thought it was more like "tick this box if you want to claim the tax free threshold for this employer. You can only claim tft for one employer at a time".

          Isn't it actually impossible to claim for two jobs?

          Like It just seems inefficient to allow a person to be able to do that, within their system. Surely they designed the system so you actually can't do that.

        • [Deactivated] on 29/12/2015 - 01:33
          +1

          @mnermner:

          It's not illegal to claim the TFT from more than one employer, it's just that the ATO advises against doing so because they understand that not everybody has the foresight of keeping some cash aside for tax time to satisfy their year long interest free loan from the government.

          If you tick the box n times, you'll receive the TFT n times.

      • [Deactivated] on 29/12/2015 - 01:35

        Short answer:

        No.

      • SaberX on 27/01/2016 - 02:32

        In general if you stopped one job and claimed the tax-free threshold on the next then yeah, i wouldn't sweat it too much on technicality.

        Where it gets cheeky and non advisable is if you're claiming both tax-rree thresholds and overlapping on pay.. i wouldn't advise it and yes, technically you have to pay the tax withheld back once they 'true up' your total tax come tax return time. but obviously you are rorting the system somewhat if you are claiming both tax free thresholds at the same time.

        Obviously you may argue a diff scenario where both jobs amount to an immaterially low amount of income, in which case you would never have to pay tax on both… but if you earned a taxable income then by claiming 2 x tax free thresholds you would be saving on tax upfront before having to pay it back… which could land you in trouble

    • [Deactivated] on 28/12/2015 - 19:35

      So claiming the TFT multiple times from multiple employers is concerning? How so, if the practice is not illegal and if the person exercises financial diligence in keeping money aside for expected tax liabilities?

  • redslert on 28/12/2015 - 20:28

    Not illegal, just mean you need to pay more tax at end of tax year.
    Everything gets added up to a single total income from all income sources.
    Your tax is then worked out and then subtracted by the pay-as-you-go rate and it would more than likely be too low so you need to pay it back.

  • SlickMick on 28/12/2015 - 23:17

    Like most other responses I'm only guessing, but I expect you are not allowed. It might seem like "who cares, you catch up at tax time", but PAYG isn't optional.

    I'm mainly going by my smsf - the ATO insists that they receive progressive payments (PAYG) and you don't get much say in it. You can request a lower payment, but if your tax is more, there are penalties.

    Similarly, if you have a lot of deductions, you can request that you reduce your PAYG payroll deductions, but again I think there would be penalties if you are not making sufficient progressive payments.

    I think the ATO is struggling with their cash flow :)

  • [Deactivated] on 28/12/2015 - 23:57

    I thought you needed to fill out a tax form to claim the tax free threshold. Then when you fill out the second form, they cancel the tft on your old job

  • Plug on 29/12/2015 - 00:44
    -1

    It is as mnermner said. Only one Tax File Declaration can be in force at any one time.

    Interestingly you can opt not to claim the tax free threshold at all. Just means you pay tax on all your income but are guaranteed a hefty refund each year. It's a good way of saving money although you don't get paid interest on it of course.

    I am an ex ATO employee.

    • [Deactivated] on 29/12/2015 - 01:35
      +1

      Only one Tax File Declaration can be in force at any one time.

      So, by claiming the TFT on 3 jobs at the same time in years gone by, I broke the law?

      Would love to see this law! :)

    • dji1111111 on 30/12/2015 - 10:26

      How in the world is that a good way to save money being paid zero interest? Worst advice ever

  • jenkemjunkie on 29/12/2015 - 08:58
    +1

    Not illegal. I did this when I worked two part-time jobs whilst at uni after receiving advice from the appropriate avenues (tax solicitors and accountants that aren't the H&R Block variety). I think the ATO don't really encourage this method however and would rather be vague and obtuse with the stipulations. The average Australian lacks the financial literacy and discipline to be able to pay the resulting tax bill, so the ATO would rather people think they need to be over-taxed than to be chasing so many resulting tax debts.

    I always got a tax bill, but I'm the type of person that files on the 31st of October by paper so the bill doesn't become due until late December. If I had my way I'd prefer no PAYG at all and just pay tax as a lump sum but since so many fellow co-workers have the mentality of 'money burning a hole in my pocket' this would never happen.

    • ronnknee on 29/12/2015 - 10:04
      +1

      the ATO would rather people think they need to be over-taxed than to be chasing so many resulting tax debts.

      Can't really blame them. You have people on OzBargain who drive uninsured cars because it's too costly, and when they become involved in accidents, they cannot pay the bill.

      • jenkemjunkie on 29/12/2015 - 15:38

        They're probably driving on bald tyres too. Money priorities are elsewhere. Filling up their house with useless trinkets takes precedence over their safety or liabilities.

      • sareth on 30/12/2015 - 09:51

        At least they're not unregistered… right?

  • Lucky13 on 29/12/2015 - 09:44
    +2

    Tax free threshold/income from multiple employers - https://www.ato.gov.au/Individuals/Working/In-detail/TFN-dec…

  • [Deactivated] on 29/12/2015 - 12:21
    +2

    Thanks Lucky13

    "
    If your second payer does not withhold a higher rate of tax this may lead to a tax debt at the end of the financial year.

    However, if you are certain your total income for the year will be less than $18,200 you can claim the tax-free threshold from each payer."

    • SlickMick on 30/12/2015 - 23:31

      finally an actual factual answer.

      I accidentally upvoted Lucky13, but that's just annoying posting a link without the relevant info :)

      But between the 2 of you, well done. case closed.

  • Kempe on 29/12/2015 - 14:01
    +1

    Have you worked out how much you will actually make out of this?

    Probably better taking sandwiches to work and stop lunchtime coffees and say no to a few beers on a Friday arvo

    • Deridas on 29/12/2015 - 14:53

      We are ozbargainers… If it saves us enough for a cup of coffee for no extra work it's worth it. :)

  • MrFrugalSpend on 29/12/2015 - 15:01
    +1

    You have to fill in a Tax File Declaration. The key here is it is a 'declaration' - there are penalties for making misleading statements in a formal declaration to the ATO.

    See - NAT3092-07.2015. https://www.ato.gov.au/uploadedFiles/Content/CAS/downloads/IND6360n3092_SO(1).pdf

    At the end you have to sign it and it says:
    "Declaration by Payee: I declare that the information I have given is true and correct"
    "There are penalties for deliberately making a false or misleading statement"

    Also see the statement with Question 8. "Do you want to claim the tax free threshold from this payer? Only claim the tax-free threshold from one payer at a time, unless your total income from all sources for the financial year will be less than the tax-free threshold".

    As Kempe said above, with interest rates so low you probably aren't saving much - probably about $50-$100 for the year as a guess if you invest the extra money (i'm sure someone could work it out using the threshold tables and a standard bank interest rate if they have the time). So yeah, cut back on 1 coffee per fortnight and you'll save more.

    Then you have to have to be diligent and have the cash to pay the tax bill. Probably not worth drawing attention to yourself from the ATO as someone willing to 'bend' the rules. Strictly against a criminal code or not, its still quite clear you are supposed to declare that you have another job you are claiming the tax free threshold from.

    I had a colleague at work who was thinking they were actually being taxed more on their second job, I had to explain that it all evens out when the tax return goes in and the income is amalgamated. You aren't taxed any more in the end.

    • [Deactivated] on 29/12/2015 - 19:08

      +1
      As a small business owner, there are things I could technically get away with in regards to the ATO, but you need to be sure the benefit outweighs the risk of drawing attention to yourself and getting audited (and the associated time you'd need to invest in an audit).

    • backno67 on 30/12/2015 - 18:06

      I worked out it will be $40 per year net (already deducting the tax on the interest earned). Regarding coffees, i dont drink any, and the diligence is just easy. You are right that it's probably not worth drawing attention to myself for that amount, though I also think for that small amount they probably wouldnt care much either.

  • stuarts on 29/12/2015 - 17:23
    +1

    If you had 2 jobs that gave you a total income less than the tax free threshold, it should be entirely acceptable to claim tax free threshold on both as you will not reach the tax free threshold. I know that is different to what is being asked, but it would seem to make it ok to claim it twice.

  • T1OOO on 29/12/2015 - 17:50

    There are instances where you can work a few odd jobs and claim the tax free threshold on both jobs and still be ok.

  • Brianqpr on 30/12/2015 - 10:08

    Not illegal but is it worth it? How much is doing this actually worth?

  • noskich on 30/12/2015 - 12:07

    I actually ticked no to the claim question, but at my second job they tax me PAYG for less than 10% since they don't know how large my first income is. I also listed my investments under my wife's name since her income is much less. As a result I pay extra tax (including the tax on the investment income listed under my wife) of +10K. Never actually calculated how much benefit do I get. Also lodging tax 5 minutes to midnight so to pay latest possible.

    Better option is to be a contractor and simply pay a lump sum at the end.

  • Donaldhump on 30/12/2015 - 16:05

    i would do what you want to do, might be illegal, but doubt they will care too much, delaying psyment is in ur favour… tax isnt due to a certain date so stuff the ato

    i get payg and never pay them, some time ago i paid one and it didnt get credited due to an error, and it took them an eternity to fix, and 50 odd phone calls, and i made them pay the same rate of interest they would charge… so afai am concened ill pay anything as late as possible…

    they were bloody incomprtent

  • JetLi on 30/12/2015 - 18:23

    Not illegal, but not recommended as it could result in you having a fairly hefty tax bill come tax return time, which is problematic if you are a spender rather than a saver during the year.

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