Tax Offset Guide for Australians

[Updated April 28, 2023]

This quick guide explains all the essentials you need to know about tax offsets in Australia. We discuss how these offsets work, the common types, and their potential benefits if you’re eligible.

So, First, What Is a Tax Offset?

You may have already heard this term a few times before, especially during tax time. The Australian Tax Office (ATO) describes it as a direct reduction to the amount of tax you pay (or tax payable) based on your taxable income in the given financial year. The most common tax offsets are the Low Income Tax Offset (LITO) and the Low and Middle Income Offset (LMITO, which some people refer to as Lamington).

Before you determine whether you’re eligible for any of the tax offset types, it is best to understand how it works. A tax offset, in simple terms, is a tax rebate. Therefore, you can already tell that it helps reduce your tax payments yearly. Some tax offsets require you to claim them, whilst others will automatically be calculated by the ATO.

Suppose the tax offset you are qualified for requires you to make a claim actively. In that case, you need to lodge specific paperwork on or before the end of the financial year. You can also make a note on your tax return regarding the claim. The Low and Middle Income Tax Offset, on the other hand, will be taken care of by the ATO. The government agency will factor the offset into your tax return upon submission. Therefore, you do not have to do anything extra to claim it.

Will a Tax Offset Grant You an Actual Tax Refund?

The answer to this question will depend on the type of tax offset. Certain offsets can reduce the payable income tax to as low as zero. However, the ATO does state that many of these available offsets are non-refundable. In that case, you cannot get an actual tax refund in the form of cash deposited into your bank account.

Let us say that the tax amount you are required to pay is $3,000 and the tax offset you’re eligible for is $3,300. If you think that you will receive $300 as a refund, you’re wrong. You will simply have $0 tax liability.

Another thing that the ATO would like to clear is that tax offsets are not used to reduce other payments you need to make, such as the Medicare Levy or Medicare Levy Surcharge.

Is a Tax Offset the Same as a Tax Deduction?

The similarity between tax deductions and offsets is that they can potentially save you money on your annual taxes. But that’s where the significant likeness ends. A tax offset is a tax rebate where you can enjoy a reduced amount of income tax payable based on your taxable income. So, if you owe $3,000 in tax and you’re qualified for a $2,000 tax offset, you only have to pay $1,000 in tax.

Meanwhile, a tax deduction lowers your taxable income. So, if you earn $80,000 and you’re qualified for a $10,000 deduction, your income tax will then be based on the reduced taxable income, which means you will be in the $70,000 income tax bracket.

What are the Common Tax Offsets Available for Australians?

There are four common types of tax offsets that you may be eligible for:

1. Low and Middle-Income Tax Offset (LMITO)LMITO also includes Low Income Tax Offset (LITO). Certain taxpayers can qualify for both LITO and LMITO since they are generally based on income. If you are below a certain threshold, you could enjoy a rebate of up to $1,080 (LMITO). Your taxable income should be between $48,000 and $90,000. The ATO will calculate your tax cut for you as you lodge your return. That means you can immediately benefit from the offset if you’re qualified to either or both.
2. Tax Offsets Linked to Super IncomesTwo types of super-related offsets apply to Australians:
   • For people who receive income from an Australian super income stream
   • For people who make contributions to their spouse’s super

   If you qualify for the first type mentioned above, you can get a 15% deduction off of your super stream income. Some people get a 10% deduction based on their untaxed income with a maximum offset of $10,000.

   Meanwhile, if you contribute on behalf of your spouse, you can get a tax offset of up to $540. The offset amount will be based on various factors, including the age, the total assessable income, and reportable fringe benefits of your spouse.

3. Private Health InsuranceA private health insurance tax offset is a government scheme that encourages Australians to have private health insurance. If you just renewed or took out health insurance, you could be eligible for this tax offset. Bear in mind that there are certain requirements that you should meet to qualify, including having an appropriate level of cover for private hospital insurance, your income, and the contribution you make towards the premium costs.
4. Seniors and PensionersDo you receive a government pension from the Department of Veterans Affairs or Centrelink? If so, you may be eligible for a tax offset, as well as if you meet the age requirement for Age Pension. Better known as the Seniors and Pensioners Tax Offset (SAPTO), this rebate can reduce your tax by up to $2,230 if you’re single. If you’re married, you and your partner may be qualified to claim up to $1,602. Couples separated by illness may be able to claim up to $2,040.

How to Claim Your Tax Offset

If you are eligible for a tax offset, you may want to know what you need to do to claim it. The good news is that you only have to lodge your tax return with us here at TaxReturn.com.au. You will get a refund estimate so that you can quickly see how much your rebate will be. Sign up with us now to claim the tax cut you’re entitled to!

*General Advice Warning – “Any financial product advice provided by TaxReturn.com.au is general in nature and is not personal financial advice. It does not take into account your objectives, financial situation, or needs. Before acting on any information, you should consider the appropriateness of it regarding your own objectives, financial situation and needs.”