Tax offsets and rebates
Tax offsets — sometimes called rebates — are different from deductions. A deduction reduces the income your tax is calculated on. An offset reduces the tax itself, dollar for dollar, after the brackets have been applied. Offsets are applied automatically where the ATO can work them out, and they are non-refundable: they can cut your tax to zero, but they cannot create a refund on their own.
Low Income Tax Offset (LITO)
The LITO is worth up to $700: full where taxable income is $37,500 or less, then reducing by 5c per dollar to $45,000 and by 1.5c per dollar after that, until it runs out at $66,667. It is applied automatically when you lodge. See the tax-free threshold guide for the full table and the $21,884 effective tax-free point it creates.
Seniors and Pensioners Tax Offset (SAPTO)
SAPTO is for people who have reached age-pension age (or meet the other eligibility rules, such as holding a Commonwealth Seniors Health Card) and whose income is low enough. The maximum offset is $2,230 for eligible singles and $1,602 each for eligible couples. It reduces by 12.5c for each dollar of rebate income above the threshold, so it phases out as income rises. If you are eligible, the ATO generally applies it from the information in your return.
Private health insurance rebate
If you hold private health insurance, you may be entitled to an income-tested rebate on your premiums. The rebate percentage depends on your income tier and your age, and you can take it as a reduced premium through your insurer or claim it in your return. Higher-income earners receive a smaller rebate, and the top tier receives none. Your health fund's tax statement shows the amounts to enter in myTax.
Offsets versus deductions — the difference
| Deduction | Offset | |
|---|---|---|
| Reduces | Taxable income | Tax payable |
| Value of $1,000 | $150–$450, depending on your marginal rate | $1,000 of tax (up to the tax you owe) |
| Example | Work expenses, donations | LITO, SAPTO, health insurance rebate |
Coming from 1 July 2027
A new $250 Working Australians Tax Offset is legislated to start for people earning income from work, alongside the cut in the second tax bracket to 14%. It will apply from the 2027–28 income year.
Sources: Australian Taxation Office (ato.gov.au) — Tax offsets; Low income tax offset; Seniors and pensioners tax offset; Private health insurance rebate.