Tax-free threshold and Low Income Tax Offset
The tax-free threshold is the first slice of your income that is not taxed at all. For Australian residents it is $18,200 of taxable income a year. If your taxable income is $18,200 or less, you pay no income tax. If it is more, you pay no tax on the first $18,200 and the bracket rates apply only to the rest.
Claiming the threshold
You claim the tax-free threshold on the Tax File Number declaration you give your employer. Claim it from one employer at a time — usually the one that pays you most. If you claim it from two employers at once, too little tax will be withheld and you will owe the difference at tax time. If you do not claim it at all, your employer withholds as if the whole amount were taxable, which means a bigger refund later but less pay during the year. You cannot claim the threshold if you are a foreign resident for tax purposes.
The Low Income Tax Offset (LITO)
The Low Income Tax Offset is a second layer of help for lower earners. It is applied automatically by the ATO when you lodge — you do not claim it separately. For 2026–27:
| Taxable income | LITO |
|---|---|
| $0 – $37,500 | $700 (maximum) |
| $37,501 – $45,000 | $700 minus 5c for each $1 over $37,500 |
| $45,001 – $66,667 | $325 minus 1.5c for each $1 over $45,000 |
| $66,668 and over | Nil |
LITO is non-refundable: it can reduce your tax to zero, but it cannot create a refund by itself. It also does not reduce the Medicare levy.
How the two work together
With the full $700 LITO, the point at which you start paying tax moves up. At $21,884 of taxable income, the tax on the $3,684 above the threshold is 15% × $3,684 = $552.60 — less than the $700 offset — so no income tax is payable. That makes $21,884 the effective tax-free point for someone receiving the full LITO. (The Medicare levy is separate and has its own low-income thresholds.)
Do you still need to lodge if you earn under the threshold?
Often yes. You generally need to lodge a return if any tax was withheld from your pay, if you had business income, or if the ATO asks you to. If you earned under the threshold, had no tax withheld, and had no other reason to lodge, you can tell the ATO you do not need to lodge that year through a non-lodgment advice in myGov. When in doubt, lodge — a return that shows no tax payable costs you nothing but time.
Sources: Australian Taxation Office (ato.gov.au) — Tax rates, Australian resident; Low income tax offset; Claiming the tax-free threshold.