Tax Offset (Rebate)
A direct reduction in the amount of tax you owe, different from a deduction which reduces taxable income.
A tax offset (formerly called a rebate) directly reduces your tax payable, dollar for dollar. This is different from a deduction, which reduces your taxable income — the value of a deduction depends on your marginal tax rate, while a tax offset reduces your tax bill by its full face value. For example, a $1,000 tax offset saves you $1,000 in tax, regardless of your marginal rate.
Common tax offsets include the Low Income Tax Offset (LITO, up to $700), the Senior Australians and Pensioners Tax Offset (SAPTO, up to $2,230 for singles), the Private Health Insurance Rebate (if claimed as a tax offset rather than a premium reduction), and the franking credit offset for Australian dividends. Some offsets are refundable (you get cash back if the offset exceeds your tax), while most are non-refundable (they can only reduce your tax to zero).
Franking credits are the main example of a refundable tax offset — if your franking credits exceed your tax liability, the excess is refunded to you. Most other individual offsets are non-refundable, meaning they can't create a refund on their own but can reduce your tax to zero.
Related Terms
Low Income Tax Offset (LITO)
A non-refundable tax offset of up to $700 for individuals with taxable income below $66,667.
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.
Income Tax
Tax levied by the federal government on your taxable income, calculated using progressive tax brackets.
Franking Credits (Imputation Credits)
Tax credits attached to dividends representing company tax already paid on the profits, preventing double taxation.
Private Health Insurance Rebate
A government rebate that reduces the cost of private health insurance premiums, means-tested based on income and age.