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Australia Tax Offsets Guide

the Australian tax offsets. The guide covers: the Low Income Tax Offset — LITO (the "LITO for the low-income earners") — the LITO reduces the tax payable for the low-income individual; for the 2024-25 income year: (a) the "maximum offset" of $700 for the taxable income up to $37,500, (b) the "phase-out rate" of 5 cents per dollar for the taxable income between $37,501 and $45,000, (c) the "phase-out rate" of 1.5 cents per dollar for the taxable income between $45,001 and $66,667; the LITO is the "non-refundable offset" (the offset cannot exceed the tax payable — the excess offset is lost); the Senior and Pensioners Tax Offset — SAPTO (the "SAPTO for the seniors and the pensioners") — the SAPTO reduces the tax payable for the individual who is of the Age Pension age and meets the "income test"; for the 2024-25 income year: (a) the "maximum offset" of $2,230 for the single individual, (b) the "maximum offset" of $1,602 for each member of the couple (the "combined offset of $3,204"), (c) the "shade-out" at the rate of 12.5 cents per dollar above the "SAPTO threshold"; the SAPTO is the "non-refundable offset"; the franking credits offset (the "dividend imputation system") — the Australian resident shareholder receives the "franking credits" (the "imputation credits") attached to the "franked dividends" from the Australian companies; the franking credits represent the tax paid by the company on the profits; the shareholder includes the franked dividend and the franking credits in the assessable income and claims the franking credits as the "tax offset"; the franking credits offset is the "refundable offset" (the excess franking credits are refunded to the shareholder); the other tax offsets (the "list of additional offsets") — the additional offsets include: (a) the "private health insurance rebate offset" (the "PHI rebate" claimed in the tax return), (b) the "superannuation tax offset" for the "non-concessional superannuation contributions" (the "contributions above the $1.9 million total super balance"), (c) the "land tax offset" (the "offset for the PAYG instalments"), (d) the "foreign income tax offset" (the "offset for the foreign tax paid on the foreign income" under the "foreign tax credit rules"), (e) the "zone tax offset" (the "offset for the residents of the remote areas" — the "Zone A", the "Zone B" and the "Special Zones").

Refundable vs Non-Refundable Offsets

• Refundable offsets: The refundable offset (the "franking credits offset" and the "private health insurance rebate offset" when claimed as the offset) can reduce the tax payable below zero — the excess offset is refunded to the taxpayer. The franking credits offset is the most common refundable offset for the individual investor.
• Non-refundable offsets: The non-refundable offset (the "LITO", the "SAPTO", the "zone tax offset", the "foreign income tax offset") can reduce the tax payable to zero but not below zero. The excess offset amount is forfeited. The taxpayer should estimate the tax payable before claiming the non-refundable offset.
• Offset ordering rules: The ATO applies the offsets in the specific order: first the "non-refundable offsets" (the LITO, the SAPTO, the zone tax offset), then the "refundable offsets" (the franking credits). If the taxpayer has the multiple offsets, the non-refundable offsets are applied first and the refundable offsets are applied last.

For the franking credits and the dividend imputation system, see our Investment Income Tax Guide →.

Zone Tax Offset and Special Areas

• Zone A — remote areas: The "Zone A" covers the most remote areas of Australia (the "far north Queensland", the "northern parts of the Northern Territory", the "remote Western Australia"). The Zone A offset: the "maximum offset" of $1,173 plus 50% of the "concession amount" for the dependent spouse or the child. The taxpayer must live or work in the Zone A for 183 days or more in the income year.
• Zone B — less remote areas: The "Zone B" covers the less remote areas (the "regional Australia" outside the major cities). The Zone B offset: the "maximum offset" of $57 plus 50% of the "concession amount" for the dependent spouse or the child. The taxpayer must live or work in the Zone B for 183 days or more.
• Special Zones: The "Special Zones" include the "Christmas Island", the "Cocos (Keeling) Islands" and the "Lord Howe Island". The Special Zone offset: the "maximum offset" of $1,173 plus 50% of the "concession amount" for the dependent. The taxpayer must be the resident of the Special Zone.

For the SAPTO eligibility and the senior tax treatment, see our Personal Tax Guide →.