Low income tax offset (LITO): how much you get and how it phases out
How the low income tax offset of up to $700 is calculated, the phase-out between $37,500 and $66,667, why it is non-refundable and how it lifts the effective tax-free threshold.
The low income tax offset (LITO) reduces the income tax of Australian residents with a taxable income below $66,667. You receive the full $700 if your taxable income is $37,500 or less. Between $37,501 and $45,000 it falls by 5 cents for each dollar above $37,500, leaving $325 at $45,000. Between $45,001 and $66,667 it falls by 1.5 cents for each dollar above $45,000, reaching zero at $66,667. You do not apply for it; the ATO calculates it automatically when your return is assessed.
LITO is non-refundable: it can reduce your income tax to nil but cannot create a refund on its own, and it does not reduce the Medicare levy. It has applied in this form since the 2020–21 year, and the 2026–27 rate cut did not change it. Check the ATO's LITO page each year in case the parameters change.
The formula in one table
| Taxable income | LITO |
|---|---|
| $37,500 or less | $700 |
| $37,501 – $45,000 | $700 − 5% × (income − $37,500) |
| $45,001 – $66,667 | $325 − 1.5% × (income − $45,000) |
| $66,667 or more | Nil |
Illustrative calculations:
- $40,000: $700 − 5% × $2,500 = $700 − $125 = $575.
- $52,000: $325 − 1.5% × $7,000 = $325 − $105 = $220.
- $60,000: $325 − 1.5% × $15,000 = $325 − $225 = $100.
How LITO changes your effective tax-free threshold
Because the offset wipes out the first $700 of tax, residents usually pay no income tax until their taxable income is above the $18,200 tax-free threshold plus the income on which $700 of tax would fall due.
| Income year | Rate on the second bracket | Income tax becomes payable above about |
|---|---|---|
| 2025–26 | 16% | $18,200 + $700 ÷ 0.16 = $22,575 |
| 2026–27 | 15% | $18,200 + $700 ÷ 0.15 = $22,867 |
| 2027–28 (legislated) | 14% | $18,200 + $700 ÷ 0.14 = $23,200 |
These figures ignore the Medicare levy, which has its own low-income threshold, and other offsets. A student earning $22,000 in 2026–27 would have tax of 15% × $3,800 = $570, fully cancelled by LITO, so income tax is nil.
Worked example with the phase-out
Illustrative example, 2026–27, resident, taxable income $50,000, no other offsets:
- Tax on taxable income: $4,020 + 30% × $5,000 = $5,520.
- LITO: $325 − 1.5% × $5,000 = $250.
- Income tax after LITO: $5,520 − $250 = $5,270.
- Medicare levy: 2% × $50,000 = $1,000.
- Total tax and levy: $6,270.
Now look at the next dollar earned. Inside the $45,001–$66,667 band each extra dollar attracts 30c of tax, 2c of levy and loses 1.5c of LITO, an effective marginal rate of 33.5%. Inside the $37,501–$45,000 band the effective rate is 15% + 2% + 5% = 22% in 2026–27. That is why a deduction or salary sacrifice decision should use the effective rate, not just the bracket rate.
| Income band (2026–27) | Bracket rate | Plus levy | Plus LITO withdrawal | Effective marginal rate |
|---|---|---|---|---|
| $37,501 – $45,000 | 15% | 2% | 5% | 22% |
| $45,001 – $66,667 | 30% | 2% | 1.5% | 33.5% |
| $66,668 – $135,000 | 30% | 2% | – | 32% |
(Ranges where the Medicare levy is still phasing in have a different effective rate.)
Things that affect LITO
- Residency. Only Australian residents for tax purposes can receive it. Foreign residents cannot; part-year residents get the full LITO amount based on their income, but a pro-rated tax-free threshold.
- Taxable income, not gross pay. Deductions, salary sacrifice and personal deductible super contributions reduce taxable income and can increase LITO. A capital gain increases taxable income and can reduce or remove it.
- Order of offsets. LITO is applied with other non-refundable offsets such as the seniors and pensioners tax offset. Unused amounts of non-refundable offsets are lost; they do not carry forward.
- Minors. For children under 18, LITO cannot be used against certain unearned income taxed at the special rates.
- A second offset from 2027–28. From the 2027–28 income year, residents whose net labour income (wages or business income less related deductions) exceeds the $18,200 tax-free threshold can also get a non-refundable working Australians tax offset of up to $250 (Income Tax Assessment Act 1997 Subdivision 61-E, inserted by the Tax Reform No. 1 Act 2026). It does not change the LITO figures above.
Where LITO and the old LMITO are confused
The low and middle income tax offset (LMITO) was a separate, temporary offset of up to $1,500 that ended after the 2021–22 year. Older articles and calculators sometimes still show it. If an online calculator adds a large offset for a middle income, check that it is not using LMITO. LITO is the only general low-income offset for 2025–26 and 2026–27.
FAQ
Do I have to claim LITO in my return?
No. There is no label to complete. The ATO works it out from your taxable income and residency.
Is LITO paid through my pay during the year?
Employers' withholding tables broadly allow for it if you claim the tax-free threshold with that employer, but the exact amount is finalised in your assessment. If you have two jobs, withholding may not match.
Can LITO give me a refund?
Only indirectly: if too much tax was withheld from your pay, LITO reduces the tax assessed and the excess withholding is refunded. LITO itself cannot reduce tax below nil.
Does LITO reduce the Medicare levy?
No. The Medicare levy is calculated separately and has its own low-income reduction.
Sources
- Australian Taxation Office — low income tax offset page and tax offset rules
- Federal Register of Legislation — Income Tax Assessment Act 1997, Subdivision 61-D
- Moneysmart — ASIC's general guidance on income and tax for individuals
Related: income tax rates, Medicare levy, step-by-step tax calculation.
