Low Income Tax Offset (LITO)
A non-refundable tax offset of up to $700 for individuals with taxable income below $66,667.
The Low Income Tax Offset (LITO) is a non-refundable tax offset that effectively reduces the tax payable by low- and middle-income earners. For 2026-27, LITO provides up to $700 for individuals with taxable income up to $37,500. It phases out at a rate of 5 cents per dollar between $37,500 and $45,000, then at 1.5 cents per dollar between $45,000 and $66,667, reducing to zero at $66,667.
Combined with the tax-free threshold, LITO means that residents earning up to $22,867 pay no income tax at all (before Medicare levy). LITO is automatically calculated by the ATO when your tax return is assessed — you don't need to claim it separately. However, it is not factored into PAYG withholding tables during the year, which is why many low-income earners receive a refund when they lodge their return.
Because LITO is non-refundable, it can only reduce your tax to zero — it cannot generate a cash refund on its own. However, it can work in combination with refundable offsets like franking credits. For example, if LITO reduces your tax to zero, any remaining franking credits would still be refunded.
How it works
The Low Income Tax Offset gives low- and middle-income earners a non-refundable offset worth up to $700 a year, which reduces tax payable directly rather than reducing taxable income. For 2026-27, you get the full $700 if your taxable income is up to $37,500. Above that, it phases out — first at 5 cents for every dollar between $37,500 and $45,000, then more slowly at 1.5 cents per dollar between $45,000 and $66,667, reaching zero once your taxable income hits $66,667.
You don't need to claim LITO separately — the ATO calculates it automatically as part of assessing your tax return, based on your reported taxable income. Combined with the tax-free threshold, LITO is why Australian residents can earn up to about $22,867 in a year before paying any net income tax at all, even though the tax-free threshold on its own is only $18,200.
Because LITO is non-refundable, it can only ever reduce your tax payable to zero — it can't generate a refund on its own if your tax liability is already lower than your LITO entitlement. It's also not built into PAYG withholding tables during the year, which is part of why many low-income earners see a refund at tax time even though their pay was taxed roughly correctly under the withholding tables — the LITO benefit only lands once the return is assessed.
Example: LITO in the phase-out range
Suppose your taxable income for 2026-27 is $50,000, which sits inside the second phase-out band, between $45,000 and $66,667. At $45,000, LITO has already reduced from its full $700 down to $325, having lost $375 over the first phase-out band, $37,500 to $45,000, which is $7,500 times 5 cents.
From $45,000 to $50,000 is a further $5,000 of income, reducing the offset by another $5,000 times 1.5 cents, which is $75. So at $50,000 taxable income, your LITO works out to $325 minus $75, which is $250 — well below the full $700, but still a meaningful direct reduction in tax payable.
Related Terms
Tax Offset (Rebate)
A direct reduction in the amount of tax you owe, different from a deduction which reduces taxable income.
Income Tax
Tax levied by the federal government on your taxable income, calculated using progressive tax brackets.
Tax-Free Threshold
The first $18,200 of annual income that is not subject to income tax for Australian residents.
Senior Australians and Pensioners Tax Offset (SAPTO)
A tax offset of up to $2,230 (single) for eligible seniors and pensioners, effectively raising the tax-free income level.
Low and Middle Income Tax Offset (LMITO)
A now-expired tax offset of up to $1,500 that applied from 2018-19 to 2021-22, providing additional relief to low and middle income earners.