Tax Offsets

Tax offsets are amounts subtracted directly from your tax payable. Tax offsets are also referred to as tax rebates.

In contrast, a tax deduction is an amount subtracted from taxable income, which therefore only reduces your tax by your marginal tax rate percentage. (Because the tax rates go up in steps based on income, your ‘marginal tax rate’ refers to the tax percentage applying to the top slice of your taxable income).

Each type of tax offset can potentially result in no tax being payable. Some tax offsets may be refunded in cash if the offset value is higher than your tax payable. (“refundable offsets“).

Most tax offsets however, are not refundable.

Private Health Insurance tax offsets are an example of tax offsets which may be refundable if the offset value exceeds your tax payable. The Low Income Tax Offset (“LITO”) is an example of a tax offset which is not; the value of LITO is limited to the amount of tax payable, and so can’t result in a refund.

Low Income Tax Offset (“LITO”)
The purpose of the LITO is prevent low income earners paying tax. It effectively lifts the minimum tax threshold. For the years 2018-19 to 2022-23 it is combined with the Low and Middle Income Earners tax Offset (LMITO).

Medical Expenses Tax Offset
This is a 20% offset (10% from 1 July 2012 for higher income earners) provides tax relief for taxpayers with high medical expense to claim in their tax return. From 1 July 2013 to 30 June 2019 the claim is being phased out, and will be repealed from 1 July 2019.

Private Health Insurance Tax Offset (rebate)
This offset provides a tax subsidy of private health insurance premiums

Mature Age Workers Tax Offset (“MAWTO”)
MAWTO has been abolished from 1 July 2014. The former offset provided up to $500 for Australian resident workers over the age of 55 years at 30 June.

Senior Australians Tax Offset (“SATO”) becomes “SAPTO” from 1 July 2012
The SATO is a tax offset available to age and service pensioners, and self-funded retirees of age pension age.

Beneficiary Tax Offset
The beneficiary tax offset is available to taxpayers who receive certain taxable government benefits. If the ONLY income you receive is from eligible allowances, the beneficiary tax offset will ensure that you pay no tax.

Spouse Super Contributions Tax Offset
This offset of up to $540 in value is available for eligible contributions made by a contributor to his or her spouse’s complying superannuation fund

Dependant Spouse Offset
From 1 July 2011 the dependent spouse tax offset has restricted eligibility and has been phased out.

Invalid and Carer Offset
Available to taxpayers who maintain a dependant who is genuinely unable to work due to invalidity or carer obligations.

Entrepreurs Tax Offset (“ETO”)
The entrepreneurs’ tax offset provides small businesses with a maximum tax offset equal to 25 per cent of the income tax on their business income. The offset ends 30 June 2012 – but see Small Business Tax Discount (Offset)

Small Business Tax Discount (Offset)
The small business tax offset is for unincorporated businesses and provides a percentage reduction of tax payable up to a maximum of $1,000 per financial year.

Education Tax Rebate (“ETR”)
The Education Tax Refund has been replaced on an ongoing basis by the School Kids Bonus (since removed) which is to commence in January 2013. As part of the phasing out arrangements, a lump sum payment for 2011-12 has been paid in June 2012.

Zone Tax Offset
The zone rebate or offset is for residents of specific areas within or near Australia for more than 183 days; and the overseas defence forces tax offset which is for ADF or U.N. forces in overseas localities for more than 183 days.

Delayed Income Tax Offset
The delayed income tax offset is to compensate for the tax spike that occurs when a lump sum income amount received within the year is made up of amounts which have accrued in earlier year(s).

Franking Credits Refund
Franking credits are a refundable tax offset, which means that if no tax is payable, you can get a refund.

Foreign Income Tax Offset
The purpose of the foreign tax credit offset is to prevent double taxation, where tax has been paid in a foreign country on income which is also subject to tax in Australia.

Small Business tax discount for unincorporated businesses
A Small Business initiative announced in the 2015 Budget and to take effect from 1 July 2015.  This offset is part of the government’s promise to Small Business to reduce tax rates. (See also: Company Tax Rates)


This page was last modified 2019-04-03