Low Income Tax Offset
How does it work?
Do I qualify?

Do I qualify for the Low Income Tax Offset

What is the Low Income Tax Offset?

The Low Income Tax Offset (LITO) Is a reduction in the tax someone pays once their income is over the tax free threshold of $18,200.


The maximum you can receive is $445.

Once you earn over $37,000 the offset starts to reduce. Once you earn above $66,667 you will no longer be eligible.

Do I qualify for the Low Income Tax Offset?

  • Are you an Australian Tax Resident?
  • Are you over 18 years of age?
  • Did you earn less than $66,667?

If you answered yes to all 3 questions, you qualify for the Low Income Tax Offset.

When you lodge your tax return – the ATO will automatically calculate how much you are able to receive and apply this to your tax return assessment.

An important thing to note about tax offsets is that you cannot receive more than the total tax you have had withheld during the financial year – or have paid in PAYG Installments to the ATO.

For example – if you have only earned $10,000 during the year and have not had any tax withheld during the year – or paid any tax installments to the ATO you will not receive a $445 refund of the Low Income Tax Offset. The maximum offset that you could have received was limited to your tax paid during the year, which was $0.

 

How does the it work?

Jonny had $20,000 in taxable income. The tax on this is $342. He has not paid any tax

Johnny’s taxable income is below $37,000. This means he is entitled to the maximum low income tax offset of $445.

Because the low income tax offset is more than the amount of tax Johnny needs to pay, he will receive back any tax he has had withheld from his wages – or paid in tax installments.

 

Esther has taxable income of $40,000. Tax on Esther’s income is $4,547.

Esther is entitled to $400 of the low income tax offset (because it reduces after she reaches $37,000 taxable income).

Esther will need to pay $4,547 less her low income tax offset of $400 – being $4,147.

Esther has paid $5,000 in tax during the year, so she will receive a refund of $853.

These calculations do not take into account the Medicare levy. Offsets reduce tax liability but do not reduce Medicare calculations.

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