The Low Income Tax Offset (LITO) is a tax offset available to Australian tax residents who earn below $66,667 in taxable income. It reduces the amount of income tax you pay — for those earning $37,500 or less, the maximum LITO of $700 eliminates tax entirely on incomes below the effective tax-free threshold. LITO is applied automatically when you lodge your tax return; you do not need to claim it separately.
How Much Is the LITO?
The LITO is not a fixed amount for everyone. It phases out as income rises:
| Taxable income | LITO amount |
|---|---|
| $0 – $37,500 | $700 (maximum) |
| $37,501 – $45,000 | $700 reduces by 5 cents per dollar over $37,500 |
| $45,001 – $66,667 | $325 reduces by 1.5 cents per dollar over $45,000 |
| $66,668 and over | $0 (no LITO) |
At $37,500: Full $700 offset
At $41,000: $700 − 5% × ($41,000 − $37,500) = $700 − $175 = $525
At $55,000: $325 − 1.5% × ($55,000 − $45,000) = $325 − $150 = $175
At $66,667: $0
What Is a Tax Offset?
A tax offset differs from a tax deduction:
- A deduction reduces your taxable income (so it saves you tax at your marginal rate)
- A tax offset directly reduces your tax payable dollar-for-dollar
LITO is applied after your income tax is calculated. If your tax payable is $500 and your LITO is $700, your tax payable drops to $0 — but the offset is not refundable (the remaining $200 is not paid to you as a cash refund).
The Effective Tax-Free Threshold
The standard income tax-free threshold is $18,200. However, when you combine the tax-free threshold with the LITO, the effective tax-free threshold for an Australian resident individual who qualifies for the full LITO is approximately:
$18,200 (tax-free threshold) + offset equivalent ≈ $22,575 effective tax-free threshold
At exactly $18,201, ordinary income tax kicks in at the 19% marginal rate — but LITO offsets most of that tax until income reaches approximately $22,575.
Note: If you also have the Low Income Super Tax Offset (LISTO) and Medicare Levy reduction, the combined effective threshold differs.
How LITO Is Applied
The ATO applies LITO automatically when processing your tax return. If you use myTax or a tax agent, the offset is calculated based on your taxable income. You do not claim it via a specific label in your tax return — it is built into the tax calculation.
For employees, the ATO takes LITO into account in the tax withholding tables provided to employers (via PAYG withholding schedules). This means if you earn under $66,667, your employer should already be withholding slightly less tax from your pay to account for the expected LITO benefit.
LITO vs LMITO
The Low and Middle Income Tax Offset (LMITO) was a temporary additional offset that ran from FY2018–19 to FY2021–22. It provided up to $1,500 in additional offset for those earning between $37,001 and $126,000. LMITO was not extended into FY2022–23 and beyond. If you noticed a smaller tax refund in 2022–23 compared to prior years, the expiry of LMITO is likely the primary reason.
LITO is permanent and ongoing; LMITO is permanently ended.
Related Articles
- Do I Qualify for the Low Income Tax Offset?
- Why Did My Tax Refund Drop? (LMITO Explained)
- LMITO — The Low and Middle Income Tax Offset Explained
- Tax Offsets hub
- Taxes hub
Frequently Asked Questions
Does LITO apply to investment income and rental income? Yes. LITO is based on your total taxable income, which includes salary and wages, investment income (dividends, interest), rental income, and any other assessable income. If your total taxable income is under $66,667, you may qualify for LITO regardless of the source of that income.
I am a student working part-time — do I get LITO? If you are an Australian tax resident with taxable income under $66,667, you are entitled to LITO. Students with low part-time income often benefit from the full $700 offset, which — combined with the tax-free threshold — means many pay little or no income tax.
Does LITO reduce the Medicare levy? No. LITO reduces income tax only. The Medicare levy (2% of taxable income) is calculated separately and has its own low-income reduction scheme for very low earners.
This article provides general tax information only. For advice tailored to your situation, speak with a registered tax agent. Find one through the Tax Practitioners Board register or visit MoneySmart.