Low Income Tax Offset Explained: Are You Eligible?
Quick answer: The low income tax offset (LITO) is a tax offset worth up to $700 that reduces the tax payable by Australian resident taxpayers earning $66,667 or less in a financial year. The ATO applies it automatically when you lodge, so there is nothing extra to claim, and it can only reduce your tax bill to $0, never below.
What Is the Low Income Tax Offset?
The low income tax offset is a non-refundable offset that reduces the tax you owe, not a cash payment or a deduction. The ATO applies it automatically once you lodge your tax return, based on your taxable income for the year.
Unlike a deduction, which lowers your taxable income before tax is calculated, the low income tax offset lowers the tax itself, dollar for dollar, up to the maximum available. The offset continues to apply for the 2025-26 and 2026-27 income years and is separate from the low and middle income tax offset, which ended after the 2021-22 income year and is no longer available.
Who Is Eligible for the Low Income Tax Offset?
You are eligible for the low income tax offset if you are an Australian resident for tax purposes with taxable income of $66,667 or less in the income year. There is no separate application form: eligibility and the offset amount are worked out automatically from the income and residency details already in your tax return.
Foreign residents and most working holiday makers are generally not eligible for the low income tax offset, because it is tied to Australian tax residency rather than the amount you earn. If your residency status is unclear, a registered tax agent can help confirm which category applies to you.
How Much Is the Low Income Tax Offset Worth in 2026?
The low income tax offset is worth up to $700 a year, and the exact amount depends on your taxable income, tapering down in two stages until it cuts out completely at $66,667.
Taxable income | Low income tax offset |
$37,500 or less | $700 (maximum) |
$37,501 to $45,000 | $700 minus 5 cents for every $1 over $37,500 |
$45,001 to $66,667 | $325 minus 1.5 cents for every $1 over $45,000 |
$66,668 or more | Nil |
Source: ato.gov.au, Low Income Tax Offset.
How Is the Low Income Tax Offset Calculated?
The low income tax offset is calculated on a sliding scale that phases out in two steps as taxable income rises above $37,500. Between $37,501 and $45,000, the offset reduces by 5 cents for every dollar earned above $37,500.
Between $45,001 and $66,667, it reduces further by 1.5 cents for every dollar earned above $45,000, until it cuts out completely at $66,667. Because the offset only reduces tax payable, someone with very little tax owing will only receive an offset up to the amount of tax they actually owe, since the low income tax offset cannot create a negative tax bill or a cash refund on its own.
How Do You Claim the Low Income Tax Offset?
You do not need to claim the low income tax offset separately on your tax return. The ATO calculates it automatically from your taxable income once you lodge, and applies it to reduce your tax payable before working out your final refund or bill.
This is different from deductions and some other offsets, which do require you to keep records and report them. Lodging an accurate and complete return still matters, because your taxable income figure is what determines exactly how much low income tax offset you are entitled to.
Low Income Tax Offset vs the Tax-Free Threshold: What Is the Difference?
The low income tax offset and the tax-free threshold are two different things that work together, not the same benefit under two names. The tax-free threshold means the first $18,200 of your taxable income is not taxed at all, and it applies before any tax offsets are calculated.
The low income tax offset then reduces whatever tax remains payable after the tax-free threshold and tax rates are applied, up to a maximum of $700. Most low income earners benefit from both: the tax-free threshold reduces the amount of income that is taxed, and the low income tax offset then reduces the resulting tax bill even further.
Not sure how much low income tax offset applies to your situation, or want your whole return checked before it's lodged? Tax Falcon can work it out for you and lodge accurately from start to finish.
Frequently Asked Questions
What is the low income tax offset?
The low income tax offset is an offset of up to $700 that the ATO automatically applies to reduce the tax payable of Australian resident taxpayers earning $66,667 or less in a financial year.
How much is the low income tax offset in 2026?
For the 2025-26 and 2026-27 income years, the maximum low income tax offset is $700 for taxable income of $37,500 or less, phasing down to nil once taxable income reaches $66,667.
Do I need to apply for the low income tax offset?
No. The ATO works out your low income tax offset automatically when you lodge your tax return, based on your taxable income, so there is no separate form or claim to submit.
Is the low income tax offset the same as the tax-free threshold?
No. The tax-free threshold means the first $18,200 of income is not taxed, while the low income tax offset separately reduces the tax payable on income above that threshold, and the two apply together.
Can I get the low income tax offset on a working holiday visa?
Generally no, because working holiday makers are usually taxed as foreign residents rather than Australian residents for tax purposes, and the low income tax offset is only available to Australian tax residents.
