Low Income Tax Offset

Understanding the low income tax offset (LITO)

The Low Income Tax Offset (LITO) holds a pivotal role within Australia’s progressive tax system, working diligently to uphold the principle of fairness and equity. With its overarching objective to alleviate the burden on individuals with low taxable incomes, LITO serves as a tool to prevent an undue weight of taxation from falling upon the shoulders of those least able to bear it. This transformative tax relief not only enables individuals to meet their basic needs but also empowers them to engage in economic participation, pursue personal growth, and aspire to a higher quality of life.

Here are some key points about the LITO:

  1. The LITO is available to Australian residents for tax purposes who have a taxable income below a certain threshold. The eligibility criteria and the offset amount may change from year to year as per government legislation.
  2. The income thresholds for the LITO vary depending on the individual’s circumstances, such as whether they are single, married, or have dependents. The thresholds are typically adjusted annually to account for inflation and changes in the cost of living.
  3. The amount of the LITO also varies depending on the individual’s circumstances and income level. It is generally a fixed amount for individuals with income below a certain threshold, and then reduces gradually as income increases above that threshold.
  4. LITO is gradually phased out as income increases above the relevant threshold. This means that individuals with higher incomes receive a reduced offset amount, and those with incomes above a certain level may not be eligible for the offset at all.
  5. LITO is claimed through the individual’s annual tax return. When completing their tax return, eligible individuals can include the LITO as a tax offset, which directly reduces the amount of tax they owe or increases their tax refund.
  6. LITO interacts with other tax benefits and offsets available in Australia. It is separate from other tax offsets, deductions, or benefits such as the Low and Middle-Income Tax Offset (LMITO) or the Seniors and Pensioners Tax Offset (SAPTO).

Eligibility and offset amounts

To be eligible for the Low-Income Tax Offset (LITO), you must be an Australian resident for tax purposes. The offset amount varies based on your taxable income and is subject to annual adjustments. Here’s how the offset amounts are determined:

  • Taxable income of $37,500 or less: You receive the maximum offset of $700, which is subtracted directly from your tax payable.
  • Taxable income between $37,501 and $45,000: The offset gradually reduces by 5 cents for every $1 of income above $37,500 until it reaches $0.
  • Taxable income between $45,001 and $66,667: The offset decreases by 1.5 cents for every $1 of income above $45,000 until it reaches $0.

This article is general information only and does not provide advice to address your personal circumstances. To make an informed decision you should contact an appropriately qualified professional.