Low Income Tax Offset

The full the Low Income Tax Offset is valued at $700 on low incomes up to $37,500.

The offset is withdrawn at the rate of 5% of income above $37,500 up to $45,000, where it is reduced to $325 and then withdrawn at the rate of 1.5% of income above $45,000.

For incomes above $66,666 there is no LITO offset available.

LITO Formula

“LITO” calculation formulae for the tax years 2021 to 2026.

The Low Income Tax “Offset” is an amount subtracted from tax payable. If the calculated LITO offset is greater than your tax payable, the excess is not refundable, and it also can’t be used to offset Medicare Levy.

How To Claim Low Income Tax Offset

The offsets are automatically included in your tax assessment calculation so a claim does not need to be made within the tax return.

Both the Low Income Tax Offset (LITO) and the Low and Middle Income Tax Offset (LMITO) are calculated based on taxable income, and do not require the taxpayer’s initiative to claim (other than lodging a tax return with correct income details of course).

The effect of the low income tax offsets is raise the tax free threshold for lower income taxpayers, and to reduce tax for those in the middle income ranges.

Eligibility for low income tax offset

A taxpayer must be an Australian resident individual to be eligible for the low income tax offset.

Trustees assessable under Section 98 may also be eligible for the rebate if the beneficiary is an Australian resident individual. Section 98 deals with beneficiaries who are presently entitled to income but under some kind of legal disability.

Bankrupts and insane persons are examples of beneficiaries under a legal disability.

Minors (under age 18 at the end of the income year) are also under a legal disability, but under special rules are denied the low income tax offset on unearned income. These rules were introduced to reduce the incentive for income-splitting, typically via a family trust. However, excepted income, such as income from wages earned is eligible for the rebate.

Taxpayers with insufficient income, although they may be eligible, will not receive the full benefit of the low income rebate because it is not refundable. It only operates to the extent of tax which is payable, and then only on incomes below the cut-off points. Any “unused” offset from a year of income cannot be carried forward for a later year claim.

The offset also does not apply against any medicare levy.

The introduction of the middle income tax offset in the years 2019 to 2022 introduced additional thresholds, which complicates the arithmetic somewhat because both rebates apply together in those years. (The calculators above include both offsets together).

Low income tax offsets and the tax free threshold

For most resident adult taxpayers, there is no tax payable on income below the tax free threshold.

The current tax free threshold is set at $18,200, however the effect of the low income tax offsets is to increase the threshold minimum taxable income.

In the years 2018-19 to 2022-23 the low income tax offsets have been adjusted several times.

This has been the effect on the tax free threshold:

	2017-18	2018-19 to 2021-22 *	2022-23	2023-24	2024-25 **
Nominal threshold	$18,200	$18,200	$18,200	$18,200	$18,200
Max. Low income tax offset	$445	$445	$700	$700	$700
Low & Middle income tax offset	–	$255 or $1,080*	–
Effective tax free threshold	$20,542	$20,542	$21,885	$21,885	$22,575

For a longer discussion of the tax free threshold, head over to tax free threshold.

* Middle income tax offsets of $255 and $1,080 apply in the income ranges of $37,000 to $48,000 and $90,000 to $126,000 respectively, so there is no impact on the lower income tax free threshold position.

** tax scale change with effect from 1 July 2024

This page was last modified 14 Jun 2026