If you earn under about $67,000 a year, the low income tax offset (LITO) is quietly reducing your tax bill every year without you lifting a finger. It is worth up to $700, it is applied automatically by the ATO, and it is the reason a resident on a modest income can earn well over the $18,200 tax-free threshold before paying any income tax.
This guide explains how LITO works for the 2025-26 return you are lodging now and for the 2026-27 year that began on 1 July 2026: who gets it, how the $700 phases out between $37,500 and $66,667, what it does and does not reduce, how it interacts with the tax-free threshold and the Medicare levy, and why your refund may look different from the LMITO years. Every figure is taken from the ATO’s low income tax offset page.
To see where your income sits in the current brackets before the offset is applied, read our guide to the ATO tax rates for 2025-26, or run the numbers in our income tax calculator.
Key takeaways
- LITO is worth up to $700 for Australian residents with taxable income up to $66,667. Full $700 at $37,500 or less; nil above $66,667.
- It is automatic. Lodge your return and the ATO calculates it; there is nothing to claim or tick.
- It is non-refundable. It reduces income tax to zero at most and cannot create a refund by itself, but it can increase the refund of tax already withheld from your pay.
- It does not reduce the Medicare levy, Medicare levy surcharge or compulsory HELP/HECS repayments.
- Effective tax-free threshold: with LITO, no income tax is payable until roughly $22,575 (2025-26) or $22,867 (2026-27).
- LMITO is gone. The extra $1,080 to $1,500 offset ended on 30 June 2022; only LITO remains.
Low income tax offset at a glance
| Taxable income | LITO calculation | Offset |
|---|---|---|
| $37,500 or less | Maximum | $700 |
| $37,501 to $45,000 | $700 minus 5c for every $1 over $37,500 | $700 down to $325 |
| $45,001 to $66,667 | $325 minus 1.5c for every $1 over $45,000 | $325 down to $0 |
| $66,668 or more | Fully phased out | $0 |
Source: ATO, Low income tax offset. The same amounts apply for 2025-26 and 2026-27. Checked 6 October 2026.
What is the low income tax offset?
A tax offset is different from a tax deduction. A deduction reduces your taxable income, so its value depends on your marginal rate – a $100 deduction saves a 16% taxpayer $16. An offset is subtracted directly from the tax you owe, so a $100 offset saves everyone $100. LITO is a non-refundable offset targeted at lower-income Australian residents. In the ATO’s words, it “reduces the tax you need to pay and can only reduce your tax payable to $0. It is not a separate payment. Any unused amount can’t be refunded.”
LITO has existed in some form since the 1990s and was last increased, to its current $700 maximum, from 1 July 2020. The 2024-25 and 2026-27 changes to the tax rates themselves (the 19% rate became 16% and then 15%) did not alter the LITO amounts or thresholds, which is why the table above applies to both years covered by this guide.
Who is eligible for LITO?
- You are an Australian resident for tax purposes for at least part of the year. Foreign residents are not entitled to LITO (or to the tax-free threshold).
- Your taxable income is $66,667 or less. Taxable income means all your assessable income – salary, business income, interest, dividends, capital gains – less your deductions. It is the figure on your notice of assessment, not your gross pay.
- You have income tax to reduce. If you earn under $18,200 you have no tax payable and LITO gives you nothing extra.
There is no age limit, no requirement to be employed, and no need to be on a low income for the whole year. A full-time earner who works only part of the year, a retiree with investment income, or a student with a part-time job all qualify if their taxable income for the year is within the range. One exception: LITO cannot be used against a minor’s “eligible taxable income” (unearned income such as trust distributions taxed at penalty rates), so it does not shelter investment income parked in a child’s name.
How LITO is calculated
The offset has three bands. On taxable income of $37,500 or less you receive the full $700. From $37,501 to $45,000 the offset reduces by 5 cents for each dollar over $37,500, so at $45,000 it is $325. From $45,001 to $66,667 it reduces by a further 1.5 cents per dollar over $45,000, reaching zero at $66,667. The two different taper rates are why the phase-out is steep at first and then gentle.
Example 1 – Chloe, part-time retail (2025-26)
Chloe’s taxable income is $35,000. Her income tax before offsets is ($35,000 – $18,200) x 16% = $2,688. She is under $37,500 so receives the full $700 LITO, leaving $1,988 of income tax. Her Medicare levy is calculated separately: at $35,000 she is within the 2025-26 phase-in range ($28,011 to $35,013 for a single person), so she pays a reduced levy rather than the full 2%.
Example 2 – Ben, graduate (2025-26)
Ben’s taxable income is $40,000. Income tax before offsets is $21,800 x 16% = $3,488. His LITO is $700 less 5 cents x ($40,000 – $37,500) = $700 – $125 = $575. Income tax after LITO is $2,913, plus the full 2% Medicare levy of $800.
Example 3 – Sam, administrator (2025-26)
Sam’s taxable income is $55,000. Income tax before offsets is $4,288 (on the first $45,000) plus $10,000 x 30% = $7,288. His LITO is $325 less 1.5 cents x ($55,000 – $45,000) = $325 – $150 = $175. Income tax after LITO is $7,113, plus Medicare levy of $1,100.
In 2026-27 the rate on income between $18,200 and $45,000 falls from 16% to 15%, so Chloe’s and Ben’s income tax before offsets would be lower, but their LITO amounts are identical because LITO depends only on taxable income.
LITO and the tax-free threshold
The tax-free threshold for residents is $18,200. LITO raises the effective tax-free point: because the first $700 of tax is cancelled, no income tax is payable until the tax on income above $18,200 reaches $700. At the 16% rate for 2025-26 that happens at $18,200 + ($700 / 0.16) = $22,575; at the 15% rate for 2026-27 it is about $22,867. If you work a second job, this is also why claiming the tax-free threshold from only one employer matters – see our guide to how to claim the tax-free threshold and to whether a second job is taxed higher.
Employers do not apply LITO when withholding tax from your pay; the PAYG withholding schedules build in an estimate of it. The actual offset is worked out on your return, which is one reason your refund rarely matches a back-of-envelope calculation exactly.
What LITO does not reduce
LITO reduces income tax only. It does not reduce:
- The Medicare levy (2% of taxable income above the low-income thresholds). Low-income earners get relief from the levy through its own threshold and phase-in rules, not through LITO – see our Medicare levy exemption guide.
- The Medicare levy surcharge, which applies to higher-income earners without private hospital cover.
- Compulsory HELP, VSL or other study loan repayments, which are calculated on repayment income before offsets.
- Tax on a minor’s unearned income, as noted above.
Because it is non-refundable, LITO also cannot turn a nil tax position into a refund. If you earned $16,000 and had $500 withheld, you get the $500 back because your tax is nil – LITO adds nothing. If you earned $30,000 and had $2,500 withheld, your tax before offsets is $1,888, LITO reduces it to $1,188, and your refund is $2,500 less $1,188 less your Medicare levy. In that sense LITO does increase the refund of tax already paid, which is how most people experience it.
Rule of thumb
Under $37,500: you get the full $700 and should pay no income tax at all until about $22,575 (2025-26). Between $37,500 and $66,667: you get something, tapering to nothing. Over $66,667: LITO is not part of your tax picture, and a bigger refund will have to come from deductions or other offsets instead.
LITO vs LMITO: why refunds changed
From 2018-19 to 2021-22 the low and middle income tax offset (LMITO) was paid on top of LITO, worth up to $1,080 and, in its final year, up to $1,500 for incomes up to $126,000. Many people came to expect a refund of that size every July. LMITO ended on 30 June 2022 and has not been replaced. Since 2022-23, only LITO applies, which is the single biggest reason refunds for middle-income earners have been smaller even where income and deductions have not changed. The 2024-25 and 2026-27 rate cuts offset some of that through lower tax withheld during the year rather than a lump sum at tax time.
How to receive LITO
- Lodge your tax return, either through myTax or a registered tax agent. There is no LITO label to complete.
- Make sure your residency status is correctly shown as an Australian resident for the relevant period.
- Report all income and claim all the deductions you are entitled to; the offset is calculated on your final taxable income.
- Check your notice of assessment. LITO appears in the offsets section as part of the calculation of your tax payable or refund.
If you have other offsets – the seniors and pensioners tax offset (SAPTO), the private health insurance rebate, or offsets for zone residents – they are applied alongside LITO according to the ATO’s ordering rules. Our overview of tax concessions lists the main ones.
Common misunderstandings
- “I have to apply for it.” You do not. It is automatic.
- “It will give me a $700 refund.” Only if you had at least $700 of income tax to reduce and tax withheld to refund.
- “It covers my Medicare levy.” It does not; the levy has separate low-income relief.
- “I earn $60,000 so I get LITO and LMITO.” LMITO no longer exists; at $60,000 LITO is $325 – 1.5c x $15,000 = $100.
- “My employer already applied it.” Withholding only estimates it; the real figure is on your assessment.
- “Working holiday makers get it.” Working holiday makers are taxed under their own schedule and are generally not entitled to LITO.
FAQ about the low income tax offset
How much is the low income tax offset?
Up to $700. You get the full $700 if your taxable income is $37,500 or less. Between $37,501 and $45,000 it reduces by 5 cents for every dollar over $37,500, and between $45,001 and $66,667 it is $325 less 1.5 cents for every dollar over $45,000. Above $66,667 it is nil. These amounts apply for both 2025-26 and 2026-27.
Do I need to apply for LITO?
No. The ATO says you don’t need to do anything to claim it except lodge your tax return; the offset is worked out automatically after you lodge and shown on your notice of assessment. There is no label for it in myTax.
Is LITO paid as a refund?
Not on its own. LITO is non-refundable: it can reduce your income tax to zero but any unused amount is not paid out. If tax was withheld from your wages during the year, LITO can increase the refund of that withheld tax, which is why many low-income earners see it as “extra refund”. It does not reduce the Medicare levy or compulsory HELP repayments.
Does LITO change the tax-free threshold?
Effectively, yes. The tax-free threshold is $18,200, but because LITO wipes out up to $700 of tax, a resident with no other offsets pays no income tax until taxable income reaches about $22,575 in 2025-26 (at the 16% rate) and about $22,867 in 2026-27 (at the 15% rate). You may still pay the Medicare levy above its own thresholds.
What happened to LMITO?
The low and middle income tax offset (LMITO) was a temporary measure that applied from 2018-19 to 2021-22 and is no longer available. LITO is the permanent offset and continues to apply.
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Talk to a registered tax agent
LITO takes care of itself, but the deductions and residency details that determine your taxable income do not. Nanak Accountants prepares individual tax returns for employees, students, retirees and part-time workers across Australia, and we check every offset you are entitled to before lodging. Call 1300 626 258 or book a consultation.
This article is general information only and is not personal tax advice. LITO amounts and thresholds were checked against the ATO’s low income tax offset page, and tax rates and Medicare levy thresholds against ATO rates pages, on 6 October 2026.
