Low and middle income earners may be eligible for the low income tax offset and the low and middle income tax offset. We work out the offset amounts when you lodge your tax return.
To be eligible for one or both of these tax offsets:
- you need to be an Australian resident for income tax purposes and pay tax on your taxable income
- your taxable income needs to be below certain income thresholds.
You don’t need to complete a section in your tax return to get these tax offsets. If you meet the conditions above, your entitlement to any offset amount is added to your tax return. You can see the amount on your notice of assessment (you won’t receive the offset as a separate payment).
What is a tax offset?
A tax offset reduces the tax you pay (known as your tax payable) on your taxable income. Your taxable income is your total income minus any deductions you claim.
The low income tax offset and the low and middle income tax offsets can only reduce the tax you pay to $0 (zero). Any offset amount that remains once your tax payable is zero isn’t refunded to you.
How tax offsets affect the tax you pay
The tax offset amount you receive depends on your taxable income and the amount of tax you need to pay on this income (your tax payable).
Offsets can’t reduce your Medicare levy and Medicare Levy Surcharge (if any). The Medicare levy is 2% of your taxable income, in addition to the tax you pay on your taxable income.
So, if your taxable income is $18,200 or less and you:
- have not paid any tax, an offset can’t reduce the tax you pay – your tax payable amount is already zero
- have paid any tax on this income, you will generally receive all of this tax back as a refund – your tax payable amount is zero so no offset can be applied.
If your taxable income is $18,201 or more, we use your taxable income to work out how much tax you’re required to pay. We then reduce the tax you need to pay with the offset amount you’re entitled to.
If you are under 18 years old as at 30 June of the income year and you have unearned income, these offsets can’t reduce the tax payable on this income.
Claiming income tax offsets
You don’t need to complete anything in your tax return in order for us to work out your low income tax offset or the low and middle income tax offset. We work out the amounts of these tax offsets for you once you lodge your tax return.
Any offset you are entitled to is included when we work out the result of your tax return.
If you want to find out how much of an offset you were entitled to, you can see this amount on your notice of assessment. Look for the Less non-refundable tax offsets section.
If you lodge online, your notice of assessment will be sent to your myGov Inbox once your return has been finalised.
If you receive a tax refund it will be deposited into your nominated bank account. Any refund may also be reduced by any debt you have with us or any Australian government agency, the law requires us to use refunds or credits to pay debt.
Changes to the Personal Income Tax Plan
In the 2020–21 federal Budget, the Australian Government announced they would bring forward stage two of the personal income tax plan from 1 July 2022 to 1 July 2020.
This means, the low income tax offset has been increased and the low and middle income tax offset will still be available for the 2020–21 income year.
These changes are now law.
The government also announced in the 2021–22 federal Budget that the low and middle income tax offset will continue to be available for the 2021–22 income year. This change is not yet law.
Low income tax offset
The maximum low income tax offset is $700 for the 2020–21 and later income years. This has been increased from $445 as a result of the 2020–21 federal budget.
If your taxable income is:
- $37,500 or less, you will get the full offset of $700
- between $37,501 and $45,000, you will get $700 minus 5 cents for every $1 above $37,500
- between $45,001 and $66,667, you will get $325 minus 1.5 cents for every $1 above $45,000.
Low and middle income tax offset
The low and middle income tax offset amount is between $255 and $1,080.
The full offset is $1,080 per annum but you might not receive the full $1,080. The base amount is $255 per annum.
This offset is available for the 2018–19, 2019–20 and 2020–21 income years.
If your taxable income is between $37,001 and $126,000, you will get some or all of the low and middle income tax offset. This is in addition to the low income tax offset.
The amount of offset you receive depends on your circumstances, such as your taxable income and how much tax you have paid.
The table and graph below shows the amount of the offset you can receive depending on your taxable income.