Item A2 - Part-year tax-free threshold

Click this link to open the information on Item A2 on the ATO website.

This item is only to be completed if the taxpayer changed residency either by commencing or ceasing residency during the income year. This information is used to adjust the tax-free threshold on a pro-rata basis.

If the taxpayer's residency changed during the current income year and the only income is from Australian Government sources for Australian Government allowances and payments like Newstart, Youth Allowance and Austudy payments (item 5) or Australian Government pensions and allowances (item 6) then your client might be entitled to a full tax-free threshold and it might not be necessary for item A2 to be completed. Contact the Tax Agent Liaison Office Help Desk at the ATO if you are in doubt.

Label N - Date, Residency and Months

Date: Enter a date within the current tax year.

Commenced/Stopped Residency: Select the appropriate code from the list.

Months: From the code entered Tax will calculate the number of months and the amount by which to reduce the tax-free threshold:

C (Commenced Residency) - Tax calculates the number of months from the date entered to the end of the current tax year (30 June) including the month entered.
S (Stopped Residency) - Tax calculates the number of months from the beginning of the tax year (01 July) to the date entered including the month entered.

Eleven (11) is the maximum number of months applicable to this field, therefore if the date entered results in 12 being calculated, delete the date and do not enter this item as the reduced tax-free threshold would not be applicable to this taxpayer.

Foreign residents are not entitled to a tax-free threshold.

Residents are entitled to the full tax-free threshold of $18,200.

Where a person changes their residency during the year, they are entitled to a part-year tax-free threshold.

Part-year residents are entitled to a tax-free threshold of $13,464 plus a pro-rated amount for each month they are a resident of Australia. We will work out your tax-free threshold for you using information you provide at this item. If you want to work it out, follow the steps below.

Multiply the number of months as an Australian resident by $395.
Add $13,464.

The total is your part-year tax-free threshold.

Part Year Tax-Free Income Threshold

The Part Year Tax-Free Income Threshold for taxpayers commencing or ceasing residency is calculated from the number of months at Label N. Tax prompts the preparer to pre-fill the number of days exempt from the Medicare levy to M1.

Medicare Levy Worksheet

If the fields at A2 are greyed out, the Medicare Levy Worksheet has already been attached to the return. Press Enter to open the worksheet then click the Pt-Yr Resident button to open the Part Year Residency dialog.

To attach a Medicare Levy Worksheet at A2:

Click the Schedule icon or Alt+S.
Click the Pt-Yr Resident button.
Enter the details for commencing or ceasing residency.
Click OK and answer Y/N to the prompt to ‘Transfer the number of exempt days to Medicare?’

If there are additional periods of Medicare levy exemption during residency add the number of days to the total exempt days shown on the Medicare tab and at item M1.

CCH References

2-130 Reduction of tax-free threshold