LITO offset value.
LITO offset
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Your breakdown
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A quiet tax cut for lower earners
The Low Income Tax Offset, almost always shortened to LITO, reduces the tax bill of Australians on modest incomes. It is not a payment and not a deduction. It is an offset, a direct reduction applied to the tax you would otherwise owe after your income is run through the resident brackets. This calculator takes your taxable income and returns the LITO amount you are entitled to, applying the full offset at low incomes and tapering it away as income rises. Many people never see it as a separate line, because the ATO applies it automatically when your return is assessed.
Sitting alongside the $18,200 tax free threshold, LITO is part of why low income earners in Australia pay very little tax. The tax free threshold means the first $18,200 is untaxed, and LITO then wipes out or shrinks the tax on the next slice of income above it.
Full offset, then a two stage taper
The maximum offset is $700, and you receive it in full while your taxable income stays at or below $37,500. Above that, it phases out in two stages. From $37,500 to $45,000 it reduces by 5 cents for every extra dollar of income. From $45,000 to $66,667 it reduces more gently, by 1.5 cents per dollar, until it reaches zero. The two different taper rates create a distinct kink in the curve at $45,000, which is worth understanding if your income sits near there.
A $40,000 taxable income
Using the default of $40,000, the income is $2,500 above the $37,500 point, so the first taper stage applies. The offset is reduced by 5 cents for each of those dollars.
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So the offset is $575, reducing the family's tax by exactly that amount. The chart shows the structure clearly: a flat $700 ceiling up to $37,500, a steeper drop through the first taper, then the gentler slope after the $45,000 kink as the offset trails off to nothing at $66,667.
Non refundable, the limit that catches people
The most important thing to grasp about LITO is that it is non refundable. It can reduce your tax to zero, but it cannot turn into a cash refund of its own. If your income is low enough that you owe little or no tax in the first place, you simply cannot use the full $700, because there is no tax there to offset. A common mistake is expecting LITO to arrive as a payment the way Family Tax Benefit might. It only ever cancels tax you would otherwise pay, so the benefit to someone already paying almost no tax is limited by how little tax they owe.
The hidden bite on your effective marginal rate
The taper has a subtle cost that surprises people earning in the phase out zone. Inside the first stage, between $37,500 and $45,000, every extra dollar you earn not only attracts ordinary tax under the resident brackets, it also strips 5 cents of offset. That withdrawal stacks on top of your statutory rate, so your true marginal rate, the tax on the next dollar, is higher than the bracket alone implies. It is not enough to make a pay rise unwelcome, but it does mean the benefit of earning more in that band is slightly muted. Understanding this stops people misreading their payslip when a raise delivers a little less net than the headline bracket suggested.
What happened to the LMITO that was worth more?
You may remember a larger offset of up to $1,500. That was the Low and Middle Income Tax Offset, a separate temporary measure, and it was abolished after the 2021-22 income year. Only LITO remains, capped at $700, so do not plan around the old higher figure. The two are easy to confuse because the names are nearly identical, but LMITO is gone.
Do I have to claim LITO in my tax return?
No. The ATO calculates and applies LITO automatically based on your taxable income when it assesses your return, so there is no box to tick and no separate claim to lodge. This tool simply lets you see the figure in advance, which is useful when you are estimating your refund or checking that an assessment looks right.