UPDATED: Information for 2011 is available here.
For whatever reason, “low income tax offset” has been the most commonly searched for phrase on our main site and blog since they both began in 2007.
So, what is it? Well, it’s a non-refundable tax offset. This means it can reduce your tax liability (sometimes to zero) but you won’t receive a refund of any unused portion.
This means that adult taxpayers do not pay tax until their income is above $15,000.
Simply put; it’s a use it or lose it offset.
For the 2009-10 year, the maximum low income tax offset (LITO) is $1,350.
This reduces by four cents in the dollar above $30,000 before eroding entirely at $63,750.
Here’s how it looks:
| Taxable Income | LITO Offset |
| 0 – 30,000 | $1,350 |
| 30,001 – 63,750 | $1,350 – [(taxable income - $30,000) x 4%] |
| 63,750 + | Nil |
If you are doing your own tax you don’t need to apply for the low income tax offset.
To be eligible for LITO, you must be a resident for tax purposes.
There is nothing you need to fill in on your tax return to apply for the Low Income Tax Offset. The ATO will automatically apply this offset to your assessment for you if you’re entitled to it.
Article by Christie Lewis
Christie is Practice Manager at Alan Lewis Accountants . Besides accounting, her passion is for all things small business (and blogging, of course). You can contact Christie directly at christie@lewistaxation.com.au.
Christie has written 799 awesome articles for us at Alan Lewis Accountants – BLOG
Twitter: @christielewis
{ 60 comments… read them below or add one }
It is not correct to say that the low income tax offset is non-refundable. You will be refunded the negative difference between your tax payable and the total of your tax offsets (including the low income tax offset).
Hi Steve,
A non-refundable offset refers to the case where the tax offset exceeds your tax payable. They can be used to offset all of the tax payable, but in the case of the LITO, you are not refunded the excess.
Let’s say that I earned just $10,000. This would qualify me for the full $1,350 low income tax offset. Now, the tax payable on this $10,000 is just $600. I would receive a $600 benefit from the LITO (reducing my tax payable to zero). I would not have the remaining $750 I did not get to use refunded to me. This is what is meant by a non-refundable tax offset – it can reduce your tax liability to nil but there is no payout of any residual unused portion.
My income is around $22,000 and I did ny tax return myself using e-tax. E-tax estimated that I can only get around $80 back. In you article you said “If you are doing your own tax you don’t need to apply for the low income tax offset. The ATO will automatically apply it to your assessment if you’re entitled.” I am an Australian resident, does that mean when I get my official NOA, I should get most of the tax I paid refunded? Thanks.
Hi Jenny,
The E-tax estimate should have taken into account the LITO for you.
At the most basic level (assuming no deductions, refundable offsets or entitlement to certain tax rebates), the tax payable on $22,000 is $1,050 – this calculation includes the full $1,350 for LITO.
Obviously, lots of things can affect your refund… the foremost being how much tax has been witheld from your gross payments. If the E-tax estimate doesn’t look right to you, you might want to check that you have anwered the Medicare Levy question properly and in full. This seems to be the most common error people make when doing their own tax.
If you’re not certain and would like to email me (christie@lewistaxation.com.au) or post the figures you have put into E-Tax (gross payments, tax witheld, no. of dependents, offsets you are entitled to, etc) I am happy to give you an idea of the refund estimate you should be expecting to see on the screen before you submit your return.
Without having more information on your specific circumstances, I’m afraid I’m limited in advising you.
No Problem, I will forward those information to you. Also, I have another concern, I’ve already submitted my tax return, is it too late to make an amdentment?
Not at all, Jenny. If the tax return you submit was not right, you can apply for an amendment.
thanks a lot for your reply, i will get those figures for you late tonight. Once agin, thanks for the information.
Hi Christine:
Below are what I entered into e-tax:
Under Income I have 1. salary or wages crefit/tax withheld $2,058, income $23,626. Point 10 Gross Interest $2,261.
Deduction, I have $292. No tax offset entered,
Other item I have A2. part-year tax-free threshold of $6,000. Taxation of financial arrangements N
Income test summary, I have repertable employer superannuation contributions of $1,950.
For the Medicare levy bit, M1. Medicare levy reduction or exemption, number of dependent childern and students is 0, M2. Medicare levy surcharge, covered for whole period N, number of dys not liable for surcharge 365.
I don’t have spouse, de facto partner and I am 24 years old.
No HELP and SFSS.
E-Tax estimate for the year ended 30 June 2010
Taxable income 25,595
Tax on taxble income 2,939.25
Medicare levu 383.93
Sub-total: Dross tax payable 3,323.18
Tax withheld-salary wages type income 2,058.00
Tax offsets used(tax offsets availabe) 1,350
Sub-total tax offsets and credits subtracted 3,408.00
Estimated refund due for 2009-10 84.82
What seems to be the problem here? Did I do any part incorrecly? Thanks for your time.
Hi Jenny,
You might not want to hear this but it looks like you were spot-on! Based on the figures you have provided, your e-Tax estimate is correct.
I was a little confused by you filling in A2 as this is usually only needed for part-year residents, but you have claimed the full tax-free threshold so it has not affect your return.
By the look sof it, you are earning a bit of extra income from interest (always great to see!). As you have this additional income to declare, it might be an idea to see if your employer can withold a tad more tax for you to ensure you are covered at tax-time – within $84.82 is cutting it close. Just for your own information, if it were not for the interest income, you would have received $457.89 back.
Keep saving, hang onto those receipts and be sure you are claiming everything you’re entitled to.
I’ve thrown a quick clip together to explain the low income tax offset and how to calculate your entitlement. We’re considering a video series on various offsets – including many of those you need to apply for yourself. Is there an offset you want to know more about? Let us know!
Just if you’re wondering, the reason I was confused and ended up here is simply that there is no mention of the LITO in the tax pack (at least as far as I could see). A statement on the form or in the tax pack saying that the LITO will be automatically deducted would be nice.
Thanks for sharing that, James. It’s interesting to note. To be honest, I haven’t fully trawled through the TaxPack this year.
You are absolutely right that there should be a notice somewhere obvious to tell taxpayers that the LITO will automatically be applied. Is it just me, or does TaxPack get less informative each year?
This was excellent. More please.
Thanks, Lorraine. We have several more videos in the mix. Watch out for them.
Hi Christie,
I am tempted to post my information by seeing such a clear and informative reply and that also very promptly. I am using etax to lodge my return, but I am confused about few things. I am an international student since 2 years living with my husband. My husband annual income was 28427 and tax withheld was 2551. I have a son of 6 years but he is living with my parents to my home counrty. Can he get tax offset under category T1(Spouse). Also will low income offset can be apply along with this offset.
I have very few days left to lodge my return, I hope you will reply soon.
My email address is payal.australia@yahoo.com
Hi Christie,
To add more information to the above, my annual income was 4863 for the year over and above my husband income
Payal
Hi Payal,
Generally, if both of you are Australian residents for tax purposes, the lower earner’s adjusted taxable income (ATI) is under $9,254, the main earners ATI is under $150,000 and neither of you were eligible for family tax benefit part B, the main earner could claim the dependent spouse offset.
This would not affect your husband’s eligibility for the Low Income Tax Offset (LITO). As long as his taxable income is below $30,000, he will still receive the maximun LITO entitlement.
Hi Christie,
Thanks for your helpful reply. There is one more question if you can answer. As an international students we do not have medicare facility. What I understand is that we can get exemption from medical levy. But I think we need to apply for exemption certificate from Medicare. I checked on the website and it takes about 6-8 weeks to issue such certificate. Can I claim the medical levy exemption in tax return while my application for exemption certificate is still under process as now there is not enough time left to file the tax return. If not, I will have to pay more than $400 medical levy without getting any benifit from medicare.
Payal
Hi again, Payal.
You have a couple of options.
1) You can anticipate that you will get the exemption certificate from Medicare and simply indicate you have one on your tax return (if, for whatever reason, it fell through you would have to do an amendment on your tax).
2) You can submit your tax without it and apply for an amendment later to claim back the medicare levy.
3) You could simply wait until it arrives to lodge your tax return. This would be passed the 31 October deadline for lodging on-time if you are preparing your own tax and penalties could be applied (though I would be very surprised if they did).
In my experience, Medicare can take the full 8 weeks or even longer to get the certificate to you. Personally, if I was keen to get my tax in on time, I’d probably go with option 1 – be sure to apply for the exemption certifcate right away though.
the low income tax offset video is great ,i will send it on to daughter etc , please do more
Thanks, Ross. I do have a whole series of offset screencasts planned… I’ll get these up shortly after Budget night (May 10).
When deciding whether one qualifies for the LITO, is salary sacrificing to super taken into account? My gross salary exceeds the maximum at which LITO is paid, but when you take salary sacrificing into account, my income would qualify. Does the ATO take the gross salary figure, or the salary net of salary sacrificing?
Thanks
Guy
Hi Guy,
That is an excellent question.
From a purely Tax Assessment point of view, LITO is still calculated on your TAXABLE INCOME. For the 2009-10 year, the ATO did introduce various income tests (adjusted taxable income, rebate income and income for surcharge purposes) to calculate a variety of entitlements, however, so far the new income tests have not been applied to the LITO.
If for instance, you have $50,000 taxable income and another $50,000 in Reportable Employer Super Contributions, you would still qualify for the LITO.
It’s worth noting that for things such as Child Support and Centrelink assessments, the salary sacrifice would come into play.
I hope that helps… give a yell if you need more information.
Sorry, you’ve lost me. I’m not sure if the answer is
“yes, LITO is calculated on your taxable income”, i.e gross salary minus salary sacrifice?
Or
“no, LITO is calculated on your gross income”?
I work for a university which makes a 14% employer contribution to defined benefit super and a further 3% (I think) to the accumulation component. I salary sacrifice all my personal contributions. Not sure if this is relevant or not!
Sorry about that, Guy. The answer is “yes, LITO is calculated on your taxable income.”
Hi Christie. I have been searching everywhere for an answer to this very same question. Could you please just update “post budget” and confirm that superannuation contributions, both compulsory and salary sacrifice, are NOT taken into account when assessing eligibility for the LITO. Note that the ATO site does not answer this question. I must admit I’m a little surprised that you can become eligible for this offset simply by contributing more to your superannuation.
Thanks for your help.
I can understand your frustration, Robert. There doesn’t appear to be any recent information that clearly addresses this question.
As far as I am aware at this stage, LITO will continue to be based on taxable income. It is often confusing that salary-sacrificed amounts are subject to different treatment when assessing eligibility for a variety of offsets/benefits. Gotta love this ‘simplified tax system.’
I took another look at the Parliamentary Library regarding LITO post-budget , as well as the Budget Paper it refers to, and no changes to assessment criteria is mentioned. If I find differently, I’ll be sure to post on here to let you know.
The ATO does give one outdated example of salary sacrifing into super at http://www.ato.gov.au/content/38172.htm. You’ll note they use 2008 rates and the page was last updated in July 2010. You can, however, see from this particular example, that LITO has been taken into account and calculated on the taxable income (income less salary sacrifice).
I hope that helps.
Thanks again for the clarification, Christie. It should also confirm the matter to Guy as well. I spent hours searching the ATO site & the Internet generally for definite answers on this one. I’m pleased that I finally found your site. I look forward to monitoring your great little videos as well. You have created a very informative and interesting site.
It is amazing how many different treatments we have within the tax system. I am also potentially eligible for the Old People’s Encouragement Award, (SATO), which does include superannuation, both mandatory and sacrifice, in its eligibility criteria. But not interest, dividends, & royalties, which must obviously be included in the LITO ! But at least this one is clearly explained on the ATO site. Why don’t they just add the LITO to their list of offsets in that section ??? So with these two, & your clarification, I have now worked out that I can pay myself $19,333.33 + about $33,000 in superannuation contributions from my Company before having to pay any personal tax, apart from the 15% superannuation input tax !
Thanks again for your site and help. Regards, Robert.
Thanks Christine.; this does clarify it.
Regards
Guy
Hello Christie
I found your blog while looking for help about low income and tax, so here’s my question: I earn $520 a month with one permanent part-time job as a cleaner (no tax withheld), plus between $40 – 54 a week with a casual job at a cafe. I started at the cafe in Sept ’10; but despite me filling in the withholding form to make sure they take tax out, they don’t! I have asked but nothing’s changed. I do also get some extra money from a third casual job, earning so far around $450 for the year (yes, they do take tax!).
Will I end up with a tax bill at the end of this financial year? Should I be looking for / spending to make eligible deductions?
Thanks
Hi Rebecca,
I really can’t give you a definitive answer without knowing more. It seems like your earnings for the financial year are going to be around $9,000. On it’s own this would make you non-taxable.
That said, if you are in receipt of a taxable Government payment, that income would also need to be included (we find this is usually where unexpected tax debts do occur as Centrelink do not withhold tax unless requested to). Then, depending on the particular benefit – if any – you’d factor in the various additional rebates or concessions which may be available. And I could go on…. you get the idea.
The general rule this year is that if your taxable income is under $16,000, you won’t pay any tax.
Hi Christie!
How are you?
I was wondering if you could help me out. I’ve been reading this whole page and I still don’t quite understand how LITO works.
This financial year I will have earned about $12,000. My employer automatically pays my tax from my wages every week.
I was wondering, when tax time comes, am I eligible to claim the tax I have paid back? Or does the taxation office keep the taxes I have already paid and then do I not pay any extra? Or, do I owe the taxation department the difference?
I would really appreciate the clarification.
Kindly,
Andrea
Hi Andrea,
That’s a good question and I’ll be sure to clarify it in the next video/post on LITO 2011 (I’ll be preparing it over the weekend so should be up by Monday).
For the 2011 financial year LITO has increased to $1,500. This means that adult taxpayers won’t have to pay income tax on taxable incomes below $16,000.
Let’s assume you have a taxable income of $12,000. You are esentially non-taxable. In your case, you will receive back any tax your employer has withheld from your pay. So, if you’ve already had $1,000 taken for tax from your wages throughout the year, you would receive the $1,000 back as a tax refund. Yippee!
I hope that helps to clarify things for you.
SEE THIS LINK FOR THE CURRENT RATES:
http://blog.lewistaxation.com.au/taxation/offsets/low-income-tax-offset-for-2011
Oh okay! Thank for very much for your reply! I will also be looking forward to seeing your video/post!
That does clarify my question!
Thank you kindly!
Hi there,
Maybe someone can help me..
I’ve never been 100% on how exactly the LITO works and this year i’ve estimated to be about $700 over the $16,000 as my taxable income.
So for 2010-2011 my estimate for my taxable income is about $16,700-$16,900.
Will i only pay tax on anything over $16,000? How does it work?
Thanks!
Hi Lisa,
By my calculations, your tax liability (based on nothing but a taxable income of $16,700) would be $105.
Assessable Income – Deductions = Taxable Income
Tax on taxable income – Offsets = Tax Payable.
Here’s how it is worked out:
Tax on taxable income: 16,700 – [(16,700 - 6,000) x 15%] = 1,605
Tax offset: Taxable income under 30,000 so full LITO of 1,500 applies.
Tax payable: 1,605 – 1,500 = 105
This is better explained in our LITO video for the 2010-11 financial year located here: http://blog.lewistaxation.com.au/taxation/offsets/low-income-tax-offset-for-2011
I hope that helps.
Wow, fantastic weblog layout! How long have you ever been running a blog for? you made blogging look easy. The whole glance of your web site is fantastic, let alone the content!
Thanks, Annabell.
Hi there,
I have been attempting to compete my 2011 tax, however I am a little baffled to as why the tax on my taxable income is so high? I earned approximately $57,00 and have a total of $14,066 total tax withheld and the e-tax 2011 is stating that the tax on taxable income is $10, 549?? is this correct? I have then deducted medicare and HECS and am pretty much left with zilch…perhaps this is correct and that’s just the way it is!
Thanks
Hi Kath,
My figures below are rough, based on the very limited information you have provided. It sounds like what you’ve come up with is about right.
If you had a taxable income of $57,000, the tax on this taxable income is $10,650. You’d get a $420 benefit from LITO, bringing tax down to $10,230 plus medicare (another $855) is $11,085. As you have already paid $14,066 in tax witholding, this would normally result in a tax refund of about $2,981.
However, when you have a HECS debt, you must make a compulsory repayment when your HELP repayment income is above $44,911. It sounds like your repayment amount would be in the range of 5%. If so, this means a compulsory repayment of about $2,850… leaving you with a little over a hundred bucks in your hand.
So, yes, it is probably correct.
I appreciate Your advices a lot. Not only this post, but either others helped me a lot so far, thanks!
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Hi Christie
Thank you for the very informative LITO video. I am hoping that you can advise me regarding this year’s tax return . I have submitted my tax return for this year and have had to pay tax for the first time in years (although I have earnt much less than in previous years). This does not seem right to me.
Last year, my taxable income was $28,000 and I received all of my tax back.
This year, my taxable income was $20,000 and my tax agent said that I have to pay $600 tax.
Your advise would be appreciated.
Linda
It’s hard to explain differences between years without knowing a lot more. Some things to look at might be whether you received any additional offsets last year (such as sole parent or medical). How much tax was was witheld from your wages compared to this year? Did you claim a reduction a Medicare last year that hasn’t been claimed this year? Were deductions similiar or is there a vast difference in amounts? Have the number of dependants changed, if any. Did you have more Education Tax Refund last year? Whatever it is, either enough tax hasn’t been witheld from your pay or else something has changed in your return/situation.
At the most basic level (single,no kids, excluding anything other than LITO), the tax liability on $20,000 is around $720 (this includes Medicare). If that is your situation and only about $100 has been withheld, you would owe around $600.
If your situation is the same as last year, get a copy of your last year return (or even the Notice of Assessment) and try to identify where the variance is. Post again or email me if you need any help with figuring it out.
Regards, CL
hi Christie,
I read all the posts but I still couldn’t understand.
I’m an international student and worked in a restaurant since February 2010.
Last year, my gross payments was $9111 and $986 tax withheld ed. I got 100% of it.
This year, my gross is $32817 and $4050 in tax.
I was trying to fill a form from an account service and when I saw my refund I was really surprised because I will receive only $987. So I gave up and searching on the Internet for any clue and found your weblog.
Is it correct? I will receive only that? I have a private healthcare (Medibank).
Thank you!
Hi Fabio,
I’d say that your estimate is right. I’m not aware of your specific deductions or other rebates in order to give a precise figure but it is around what I’d expect.
At it’s most basic level, the tax liability on a taxable income of $32,817 is around $4,514 (this is made up of approx. $4022 in tax plus $492 medicare levy). You’ll receive Low Income Tax Offset of around $1,387, reducing the tax payable to just $3,127. If you’ve already paid $4,050 your refund would be the difference between tax payable and tax paid. In this case that would be about $922. Any tax deductions would have reduced your taxable income a bit and increased the refund a little.
The reason you received all of your tax back in the previous year is because you were at an income level which was essentially non-taxable. The more you earn, however, the more tax you have to pay. You’ve earned a bit more this year.
I hope that helps,
CL
Hi Christie
Thanks for all the good advice on your blog. I have a question (maybe a couple) that may seem very silly to you. So here goes
1. Can international students claim exemptions from medicare levy surcharge?
2. Can they claim a medicare levy exemption
3. Can they claim a tax off set for having private health insurance as they are not eligible for medicare coverage and HAS to have private insurance?
Thanks for your valuable advice
Take care
Hi Amyz,
They are not silly questions at all.
International students can generally get an exemption from the Medicare Levy as they receive no benefit from Medicare. In order to claim an exemption from Medicare in your tax return, you need to provide a Medicare Levy Exemption Certification certificate each year. This can be obtained by completing the application form and sending it in to Medicare. Here’s a link: http://www.medicareaustralia.gov.au/public/files/ma_3169_application_for_certification_for_medicare_levy_exemption_purposes_011005.pdf
Although international students you are forced to have Private Health covereage, I’m afraid that they are not eligible for the 30% rebate.
I hope that helps.
Thanks. You are a treasure!! xoxoxox
Hi, I’m a sole trader. I earned 9000 last financial year. Will I pay any tax (given the low income tax offset)? I am a little concerned because my husband has a high income (not that I ever see it lol) and wonder whether I’ll pay any tax.
Hi Nu,
LITO is based on your own personal taxable income and so your hubby’s income does not factor into your eligibility for the offset. Based on your income, you wouldn’t have to pay tax.
Hope that helps.
Many, many thanks.
Nu
This is ridiculous!, im an apprentice chef and i was relying on my tax refund to help pay for alot of things, i payed $1700 in tax and can only be refunded $700? i never asked for the LITO and i had no idea it even exsisted, this is unfair. im just a teenager and i need this money. Is there anyway i can claim the LITO they have taken from me?. please e-mail me ASAP n_molloy1@hotmail.com
Hi Nic,
I’d need to know your taxable income in order to estimate roughly how much your refund should be.
Hi,
I hope someone can answer my question. I worked until December of 2010 as I went on Maternity Leave to have a baby in January. I applied for and received baby bonus. Before finishing work I had earned $22,500. In February 2011 my circumstances changed again and I was forced to get some help from Centerlink (Parenting Payment Single) – due to my husband leaving. For last tax year Centerlink paid nearly $5,500. Given these two calculations do I have any chance at all to get some tax back?
Thanks
Hi Lea,
Because you have received some Parenting Payment Single, you can claim the Pensioner Tax Offset. Just with the PTO, your tax liabilty on $28,000 taxable income should be nil. You’ should get back whatever you have witheld for tax.
Hope that helps.
Wait, I cannot fathom it being so strhaigftorward.
Finally i have found some information on this topic, great! Thanks for the reading.
Hi there,
This low income offset seems to interact strangely with residency status. If I became a resident for tax purposes part-way through the year, then I do not need to declare foreign income received prior to becoming a resident. So let’s say I became a resident on March 1, and before that day earned $30k from overseas employment. After I became a resident I earned $20k in Australia. My actual income for the financial year was $50k, but I only need to declare the $20k earned in Australia, which makes me eligible for the full low income tax offset (albeit liable for the part-year threshold). Is this correct? It seems strange, since the amount earned overseas is not taken into account at all. I might earn $200k, or $1m, prior to becoming a resident but only $20k after becoming a resident, and I would still be eligible for the LITO.
Hi there
I am currently using ABN as a sole trader.
My annual income is below 15,000 but through my reseach I have found out that I have to pay accroding by below figures
$1 – $6,000 – Nil
$6,001 – $35,000 – 15c for each $1 over $6,000
$35,001 – $80,000 – $4,350 plus 30c for each $1 over $35,000
$80,001 – $180,000 – $17,850 plus 38c for each $1 over $80,000
$180,001 and over – $55,850 plus 45c for each $1 over $180,000
If so, what is the low income tax offset $15000 all about ?
thank you
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