Low Income Tax Offset (LITO) Eligibility
The Low Income Tax Offset (LITO) gives low-income earners up to $700 off their tax bill. But as your income rises, the offset phases out—effectively increasing your marginal tax rate in ways the standard tax tables don't show.
How LITO works
LITO is a non-refundable tax offset. It reduces the tax you owe, but can't create a refund by itself. The offset has three stages:
Full offset
Income: $0 – $37,500
First phase-out
Income: $37,501 – $45,000
Reduces by 5c per $1
Second phase-out
Income: $45,001 – $66,667
Reduces by 1.5c per $1
Example: Income crossing into phase-out
Income: $37,500
Full LITO
- LITO received
- $700
- Tax before LITO
- $3,088
- Tax after LITO
- $2,388
- Effective tax rate
- 6.4%
Income: $40,000
Partial LITO
- LITO received
- $575
- Tax before LITO
- $3,488
- Tax after LITO
- $2,913
- Effective tax rate
- 7.3%
Example: Approaching full phase-out
Income: $60,000
Reduced LITO
- LITO received
- $100
- Tax after LITO
- $8,788
- Effective tax rate
- 14.6%
Income: $66,667
No LITO
- LITO received
- $0
- Tax after LITO
- $10,788
- Effective tax rate
- 16.2%
Why take-home pay growth slows
In the LITO phase-out range, you're hit twice when your income rises:
- Income tax: You pay the standard marginal rate on additional income
- LITO reduction: You lose part of your offset, increasing your tax further
This creates "effective marginal tax rates" higher than the published brackets:
| Income range | Marginal rate | LITO reduction | Effective rate |
|---|---|---|---|
| $18,201 – $37,500 | 16% | 0% | 16% |
| $37,501 – $45,000 | 16% | +5% | 21% |
| $45,001 – $66,667 | 30% | +1.5% | 31.5% |
| $66,668 – $135,000 | 30% | 0% | 30% |
Notice that the effective rate drops once LITO fully phases out. At $66,668, your marginal rate actually decreases from 31.5% to 30%.
Why ATO results differ from simple tax tables
Tax tables show marginal rates, not effective rates
The published tax brackets don't include LITO. When you calculate tax using just the brackets, your result will be higher than what the ATO calculates because LITO is automatically applied at lodgment.
The tax-free threshold is effectively higher for low earners
With the full $700 LITO, you can earn up to $21,885 before paying any net tax (the tax on $21,885 is approximately $700, fully offset by LITO). This is the "effective tax-free threshold" for residents.
LITO is non-refundable
LITO can only reduce your tax to zero—it can't create a refund. If you earn under $18,200 (no tax liability), LITO provides no benefit. The offset only matters if you have tax to offset.
FAQ
What is the Low Income Tax Offset (LITO)?
LITO is a tax offset of up to $700 that reduces the tax payable by lower-income earners. You receive the full $700 if your taxable income is $37,500 or less. It phases out completely at $66,667.
How does LITO phase out?
LITO reduces by 5 cents per dollar from $37,500 to $45,000, and then by 1.5 cents per dollar from $45,000 to $66,667. At $66,667, LITO is fully phased out and you receive no offset.
Why does my effective tax rate increase in the LITO phase-out range?
During the phase-out, you lose part of the LITO as your income rises. This loss adds to your marginal tax rate. Between $37,500 and $45,000, you pay 16% marginal tax plus lose 5% of LITO, creating an effective rate of 21%.
Do I need to apply for LITO?
No. LITO is automatically calculated when you lodge your tax return. The ATO applies it based on your taxable income—you don't need to claim it or include any special documentation.
Calculate your income tax
Use the income tax calculator to see your tax including LITO and other offsets.
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