Like all tax offsets, the Low Income Tax Offset (LITO) reduces the amount of income tax payable on your taxable income.
LITO can only reduce your tax liability to zero and so any unused portion is not refundable or transferable.
You do not need to apply for the Low Income Tax Offset; if you qualify, it will automatically be calculated and applied by the Tax Office for you when you lodge your tax return.
How much is the Low Income Tax Offset?
For 2016-17 the thresholds and rate remains unchanged from the previous financial year. The maximum offset is $445. This amount reduces by 1.5 cents in every dollar of taxable income above $37,000 until it erodes entirely at $66,667.
Adult taxpayers eligible for the full Low Income Tax Offset will not pay any tax until their annual income exceeds $20,542.
Here’s how it is calculated:
|Taxable Income||Tax Offset|
|0 - 37,000||$445|
|37,001 - 66,666||$445 - [(taxable income - $37,000) x 1.5%]|
|66,667 and above||Nil|
To qualify for the low-income tax offset, you must be a resident for tax purposes.
Note that from the 2012 income year, minors who are not ‘excepted persons’ are no longer able to claim LITO on their unearned income.
Examples of LITO in action
Sarah has a taxable income of just $20,000. Tax on this amount is $342. Because Sarah’s taxable income is below $37,000 she is entitled to the maximum low income tax offset of $445. The offset more than covers the tax payable. Sarah should receive back any tax she has already paid.
Kevin has a taxable income of $40,000. Tax on Kevin’s income is $4,547. Kevin is entitled to a low income tax offset of $400. This reduces Kevin’s tax liability to $4,147.*
* Note that these calculations do not take into account the Medicare levy. Offsets reduce tax liability but generally do not reduce Medicare.
The Taxation Office have an online Low Income Tax Offset calculator available.
The calculator will help you work out whether you are eligible for the low income tax offset. It also calculates the amount of your offset if your taxable income is less than the low income tax offset threshold.