The low income tax offset

As well as there being no tax on the first $18,200 (the tax-free threshold, but see also below) there is also, to provide a helping hand to taxpayers who earn under a certain amount each year, a low income tax offset.

From July 1, 2012, the maximum value of the low-income tax offset (LITO) reduces from $1,500 to $445, with the reduction rate being decreased to 1.5 cents foreach dollar of taxable income over $37,000. No offset will be available if your income exceeds $66,667.

This may vary if the low income taxpayer becomes or ceases to be a resident partway through the financial year. The low income tax offset (LITO) is in addition to dependant and all other tax offsets allowed to a taxpayer.

Another way of claiming the LITO is through your PAYG withholding. Individuals eligible for LITO can claim 70% of their LITO entitlement as a reduction in the amount of PAYG withheld from their pay. The remainder of the entitlement is then taken into account in the year-end tax return.

NOTE: Low income tax offset 'bring forward' change from 2011-12 Federal Budget
The amount of the low income tax offset (LITO) that is delivered to low and middle income earners through their regular pay during the year will be increased from 50% to 70% of their total entitlements from July 1, 2011. The remaining 30% of their LITO benefit will still be paid as a lump sum on assessment following lodgement of an income tax return.

An Australian tax resident taxpayer whose taxable income is less than $66,667 is entitled to a low income tax offset (LITO) of up to $445. This is usually claimed with the annual tax assessment.

Low income tax offset 2012-13
$0 - $37,000	$445
$37,001 - $66,666	$445 less 1.5% of excess over $37,000
$66,667 and above	Nil

The Tax Office has a LITO calculator (click here to access).

CHANGES
Note that LITO rates and thresholds will change after a price on carbon is introducd from July 1, 2012. The following table summarises the changes:

	2011-12	2012-13	2015-16
Amount	$1,500	$445	$300
LITO begins to be reduced at	$30,000	$37,000	$37,000
You are no longer eligible for LITO at	$67,000	$66,667	$67,000
Withdrawal rate	4%	1.5%	1.0%

 

NOTE: Various rebates and tax offsets apply to reduce an individual's income tax. Click here to access a table that summarises the 2012-13 tax offsets for senior Australians, pensioners, mature age workers, medical expenses and the 2012-13 tax offsets for low income earners.

Last reviewed 31/07/2012