What is a Tax Offset
A tax offset reduces the tax you pay on your taxable income. Your taxable income is your total income minus any deductions you claim.
Eligible low and middle income earners may receive one or both of the low income tax offset (LITO) and low and middle income tax offset (LMITO). The amount of available offset depends on your individual circumstances.
The low income tax offset and the low and middle income tax offset can only reduce the tax you pay to $0 (zero). Any offset amount that remains once your tax payable is zero isn't refunded to you. Offsets can't reduce your Medicare levy and Medicare levy surcharge.
To be eligible for one or both of these tax offsets you need to be an Australian resident for income tax purposes, pay tax on your taxable income and have a taxable income that is below the income thresholds.
Your entitlement to any offset amount reduces your tax payable when you lodge your tax return.
Low income tax offset
The amount of the low income tax offset (LITO) you receive will depend on your taxable income.
If your taxable income is:
$37,500 or less, the maximum offset is $700
between $37,501 and $45,000, you will get $700 minus 5 cents for every $1 above $37,500
between $45,001 and $66,667, you will get $325 minus 1.5 cents for every $1 above $45,000.
Low and middle income tax offset
In addition to the LITO, you may also receive the low and middle income tax offset (LMITO).
As announced in the 2022–23 Federal Budget, the LMITO has been increased by $420 for the 2021–22 income year. The base amount for the 2021–22 income year has increased to $675 and the full amount is $1,500.
The LMITO amount for the 2018–19, 2019–20 and 2020–21 income years remains the same at between $255 and $1,080.
If your taxable income is less than $126,000, you will get some or all of the LMITO.
The amount of offset you receive depends on your circumstances, such as your taxable income and how much tax you have paid. The low and middle income tax offset and low income tax offset are non-refundable tax offsets so the unused offset can't be refunded.
The ‘Low and Middle Income Tax Offset’ table shows the amount of the offset you can receive depending on the income year and your taxable income.
Example: Kerri’s taxable income is $45,000 for the 2021-2022 income year. Because his taxable income exceeds $37,000 but is under $48,000 he is eligible for both the low income tax offset and the low and middle tax offset.
Low income tax offset:
$45,000 less $37,000 = $7,500
$7,500 x $0.05 = $375
$700.00 - $375 = $325
Low and Middle income tax offset:
$45,000 less $37,000 = $8,000
$8,000 x $0.075 = $600
$675 + $600 = $1,275
If Kerri is eligible for the LITO and the LMITO her tax payable of $5,092 can be reduced by up to $1,600.
If your taxable income is $18,200 or less and you:
have not paid any tax, an offset can't reduce the tax you pay – your tax payable amount is already zero
have paid any tax on this income, you will generally receive all of this tax back as a refund – your tax payable amount is zero so, no offset applies.
If you are under 18 years old on 30 June of the income year and you have unearned income, these offsets can't reduce the tax payable on this income.