Low Income Tax Offset (LITO): $700 Tax Reduction You Might Be Missing (2026)
The Low Income Tax Offset (LITO) provides up to $700 in tax reduction for Australian residents earning up to $66,667. Learn the exact offset amounts, income thresholds, phase-out rates, and why it affects your tax refund more than you think.
What is the Low Income Tax Offset (LITO)?
The Low Income Tax Offset (LITO) is a tax offset (also called a tax rebate) available to Australian resident taxpayers with a taxable income of $66,667 or less. It provides up to $700 in direct tax reduction, meaning it reduces your tax payable dollar-for-dollar rather than reducing your taxable income. This distinction is important: a $700 tax offset saves you exactly $700 in tax, whereas a $700 tax deduction would only save you $700 multiplied by your marginal tax rate (for example, $112 at the 16% rate or $210 at the 30% rate). LITO is therefore much more valuable than a deduction of the same amount. The offset is non-refundable, meaning it can reduce your tax to zero but cannot create a refund on its own. If your tax liability is less than the LITO amount, you only receive the offset up to the amount of tax payable. LITO is applied automatically by the ATO when you lodge your tax return — you do not need to apply for it or claim it separately. However, it is generally not factored into PAYG withholding by your employer, which is why many low-to-moderate income earners receive a tax refund when they lodge their return: their employer has withheld tax based on the standard rates, but LITO then reduces the actual tax owed.
LITO amounts and income thresholds for 2025-26
The LITO amount depends on your taxable income across three tiers. For taxable incomes of $37,500 or less, you receive the full LITO of $700. For taxable incomes between $37,501 and $45,000, the offset is reduced by 5 cents for every dollar over $37,500. This means at $45,000, the LITO has reduced by ($45,000 minus $37,500) times $0.05 equals $375, so the LITO at $45,000 is $700 minus $375 equals $325. For taxable incomes between $45,001 and $66,667, the offset is further reduced by 1.5 cents for every dollar over $45,000. At $66,667, the LITO has been fully phased out: ($66,667 minus $45,000) times $0.015 equals $325 (approximately), which wipes out the remaining $325. Here is a quick reference: at $30,000 you get $700; at $37,500 you get $700; at $40,000 you get $575; at $45,000 you get $325; at $50,000 you get $250; at $55,000 you get $175; at $60,000 you get $100; at $66,667 you get $0. These amounts apply for the full financial year. If you earned income for only part of the year, the offset is still based on your total taxable income for the year, not prorated.
Why LITO affects your tax refund
Many Australian workers are pleasantly surprised by a tax refund they were not expecting, and LITO is often the reason. Here is why. Your employer calculates PAYG withholding based on ATO tax tables, which approximate your annual tax liability across each pay period. These tables include some adjustment for LITO but do not always capture it perfectly, particularly for workers with variable hours, multiple jobs, or mid-year income changes. The result is that employers often withhold slightly more tax than is ultimately owed. When you lodge your tax return, the ATO calculates your actual tax liability including LITO, and the difference between what was withheld and what is owed is refunded to you. For a worker earning $37,500, the full $700 LITO can result in a refund of several hundred dollars even with no deductions claimed. For someone earning $50,000, the $250 LITO contributes to the refund along with any deductions. This is particularly noticeable for workers who started a new job mid-year, as the PAYG tables assume a full year of income at that rate and may over-withhold. Understanding LITO helps you manage expectations around tax time and avoid the common mistake of thinking a refund means you are being taxed too little during the year.
LITO versus SAPTO: how they interact
The Senior Australians and Pensioners Tax Offset (SAPTO) is a separate tax offset for eligible seniors and pensioners that provides up to $2,230 for singles. LITO and SAPTO can be received together, and their combined effect can significantly reduce or eliminate tax for older Australians on modest incomes. For a single senior eligible for SAPTO, the combined effect of SAPTO ($2,230) and LITO ($700) means they can earn up to approximately $33,886 before paying any income tax at all — well above the standard $18,200 tax-free threshold. This is because the combined $2,930 in offsets wipes out the tax that would otherwise be payable on income between $18,200 and approximately $33,886. For couples where each partner is eligible for SAPTO, the effective tax-free threshold is even higher. However, SAPTO has its own income test and phase-out rules that are separate from LITO. The two offsets are calculated independently and then applied together against your total tax liability. If you are approaching pension age and expect to qualify for SAPTO, understanding the interaction with LITO helps you plan your retirement income to minimise tax. Consider the timing of super withdrawals, the tax-free component of super lump sums, and the age pension income test when structuring your finances.
Effective tax rates and the hidden impact of LITO phase-out
The phase-out of LITO creates hidden effective marginal tax rates that are higher than the headline bracket rates. In the $37,501 to $45,000 range, LITO reduces by 5 cents per dollar. Since this range is also in the 16% income tax bracket (plus 2% Medicare levy), your effective marginal rate is 16% plus 2% plus 5% equals 23%. That is significantly higher than the headline 16% rate. In the $45,001 to $66,667 range, LITO reduces by 1.5 cents per dollar. Combined with the 30% income tax rate and 2% Medicare levy, the effective marginal rate is 30% plus 2% plus 1.5% equals 33.5%. Above $66,667 (once LITO is fully phased out), the effective rate drops back to the standard 32% (30% tax plus 2% Medicare) until $135,000. This creates a slightly counterintuitive outcome where a worker earning $55,000 faces a higher effective marginal rate (33.5%) than a worker earning $70,000 (32%). The LITO phase-out region is sometimes called a 'tax trap' because the withdrawal of the offset acts like an additional tax on each extra dollar earned. While the effect is modest compared to some welfare withdrawal rates, it is worth understanding when evaluating the true cost of earning additional income in these ranges.
How LITO applies to different worker types
LITO applies equally to all Australian resident taxpayers regardless of employment type. Full-time, part-time, and casual employees all receive LITO based on their total taxable income for the financial year. Self-employed individuals and sole traders receive LITO calculated on their net business income (after deducting business expenses). Workers with multiple jobs receive a single LITO based on their combined taxable income from all sources. This is important because each employer withholds PAYG tax based on what they pay you, without knowledge of your other income. If you have two part-time jobs each paying $30,000, each employer may withhold tax assuming you earn $30,000 total (with full LITO benefit), when in reality your combined income of $60,000 means a much-reduced LITO of only $100. This can result in a tax bill rather than a refund at tax time. To avoid this, you can ask one employer to withhold at the 'no tax-free threshold' rate by not claiming the tax-free threshold on your TFN declaration for that job. Students working part-time typically benefit most from LITO, as their annual incomes often fall in the full $700 range. Retirees supplementing their income with part-time work should consider the interaction between LITO, SAPTO, and any tax-free super income streams.
Maximising LITO and your overall tax position
While you cannot directly increase your LITO amount (it is determined solely by your taxable income), understanding it helps you make better financial decisions. If your income is just above $66,667, claiming legitimate deductions to reduce your taxable income below this threshold reinstates some LITO benefit. For example, if your gross income is $68,000 and you have $3,000 in work-related deductions, your taxable income drops to $65,000, giving you a LITO of approximately $25. Without the deductions, your LITO would be zero. That $3,000 in deductions saves you $900 in income tax (at 30%) plus $25 in reinstated LITO — a total tax benefit of $925 on $3,000 of deductions. For couples where one partner earns significantly more than the other, income splitting strategies (where legally available) can shift income into the lower earner's hands where LITO provides greater benefit. Legitimate approaches include ensuring investment assets are held by the lower-income partner and directing trust distributions appropriately. Salary sacrifice into super reduces your taxable income, which can increase your LITO amount — sacrificing enough to drop below $37,500 gives you the full $700 LITO while also receiving the 15% super tax rate benefit. Use our Tax Calculator to model different scenarios and see exactly how LITO affects your total tax bill.
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General information and estimates only — not legal, financial, or tax advice. Always verify with the Fair Work Ombudsman (13 13 94) or a qualified professional.
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