Tax Offsets in Australia: LITO, SAPTO and More Explained
How tax offsets work in Australia: the difference from a deduction, why most are non-refundable, and the main 2024-25 offsets (LITO, SAPTO, health rebate).
By Timothy Hirou GaschereauPublished 9 min read
Try it yourself
Tax offsets are one of those things the ATO quietly applies to your return without much fanfare. But they can meaningfully cut your tax bill, sometimes to zero. This guide breaks down every major tax offset available to Australians in 2024-25, how they work, and who gets them. It's part of our guide to Australian income tax.
🎯 The essential: An offset reduces your tax bill directly, after tax is calculated, so it's worth more dollar for dollar than a deduction of the same size. But most offsets (including LITO) are non-refundable: they can take your tax to zero, not below it. The main 2024-25 offsets are LITO, SAPTO, and the private health insurance rebate.
What is a tax offset?
A tax offset (sometimes called a tax rebate) is a direct reduction of the tax you owe. It kicks in after the ATO has already calculated your tax on your taxable income. The ATO works out your gross tax bill first, then subtracts the offset. That's different from a deduction, which reduces your taxable income before any tax is calculated. The two happen at completely different points in the process, and that distinction has a real dollar impact.
Tax offset vs tax deduction: what's the difference?
Say you earn $50,000 and you're in the 16% bracket (on income above $18,200). A $1,000 deduction reduces your taxable income to $49,000, saving $1,000 times 16% = $160. A $1,000 offset reduces your tax bill by $1,000 directly. Offsets are more powerful dollar for dollar.
| Tax offset | Tax deduction | |
|---|---|---|
| What it reduces | Your tax bill | Your taxable income |
| When it applies | After tax is calculated | Before tax is calculated |
| Dollar-for-dollar? | Yes | No, depends on your rate |
| Impact of $1,000 | Saves $1,000 in tax | Saves ~$160 to $470 by bracket |
Why most offsets are non-refundable
Here's the bit that trips people up. Most Australian tax offsets, including LITO, are non-refundable. That means the offset can reduce your tax bill all the way to zero, but if it's worth more than your tax bill, the ATO doesn't hand you the difference as cash. It just stops at zero. If your tax bill is $200 and you have a $700 LITO, the offset wipes out the $200 and the remaining $500 disappears.
Some offsets are refundable and work differently: franking credits on share dividends are the most common example for individuals. With a refundable offset, any excess over your tax bill is paid back to you. But for non-refundable offsets, if you owe zero tax anyway, the offset won't put extra money in your pocket.
The main tax offsets available in 2024-25
- Low Income Tax Offset (LITO). The big one for everyday Australians: up to $700 for taxable incomes of $37,500 or less, then $700 minus 5c per $1 above $37,500 to $45,000, then $325 minus 1.5c per $1 to $66,667, where it hits nil. Automatically applied when you lodge.
- LMITO is gone. The Low and Middle Income Tax Offset ended after 2021-22 and hasn't been available since. If you're searching for it on your 2024-25 return, it isn't there.
- Seniors and Pensioners Tax Offset (SAPTO). Up to $2,230 for a single or $1,602 each for a couple, reducing by 12.5c per $1 of rebate income above the threshold. You must have reached age pension age and meet the income tests.
- Private health insurance rebate. Income-tested; you can take it as a reduced premium through your insurer or as an offset at tax time. See our guide on whether private health cover is worth it.
- Others worth knowing: the zone tax offset (remote areas), the foreign income tax offset (to avoid double tax), and the spouse super contribution offset (up to $540).
Worked example: how LITO reduces a low earner's tax
Jordan earns $42,000 in 2024-25 as a part-time retail worker. Tax on $42,000 is ($42,000 minus $18,200) times 16% = $3,808. Jordan's income sits in the LITO phase-out range, so LITO = $700 minus (($42,000 minus $37,500) times 5%) = $475.
| Amount | |
|---|---|
| Taxable income | $42,000 |
| Gross tax | $3,808 |
| LITO applied | -$475 |
| Tax after LITO | $3,333 |
| Medicare levy (2%) | $840 |
| Total payable | $4,173 |
That LITO knocked $475 straight off Jordan's tax bill, dollar for dollar. Note the Medicare levy isn't reduced by LITO; it's a separate charge, though Jordan may qualify for a separate Medicare levy reduction depending on income.
How do you claim tax offsets?
Good news: for most offsets, you don't need to do anything special. LITO and SAPTO are calculated and applied automatically when you lodge, based on your income and eligibility, with no separate form. LITO is also factored into your PAYG withholding during the year, so less tax comes out of each pay. For the private health insurance rebate, check your fund's annual statement and enter the details, or claim it as an offset at tax time if you didn't take it as a reduced premium.
The bottom line: offsets are quietly powerful because they come straight off your tax, but non-refundable ones stop at zero. For most people, LITO does its job automatically. Understand how it interacts with the brackets and deductions, then check your take-home pay with our salary calculator.
Money tips, straight to your inbox
Free calculators, guides and the occasional useful thing. No spam, unsubscribe anytime.
❓ Frequently asked questions
What's the difference between a tax offset and a tax deduction?
+
A tax deduction reduces your taxable income before tax is calculated. A tax offset reduces your actual tax bill after tax has been calculated. Offsets save you more per dollar because they come straight off your tax, not off the income that tax is based on.
Do I need to claim LITO separately in my tax return?
+
No. The ATO calculates and applies LITO automatically based on your taxable income when you lodge. You don't need to fill in a separate section or request it. Your employer also factors it into your PAYG withholding during the year.
Is the LMITO coming back?
+
There's no indication it will. The Low and Middle Income Tax Offset ended after the 2021-22 income year and has not been reinstated. The Stage 3 tax cuts that took effect from 1 July 2024 were the government's primary response to cost-of-living pressures for middle-income earners.
Can I get LITO if I'm a student working part-time?
+
Yes, if your taxable income is below $66,667 and you're an Australian resident for tax purposes, you're eligible for LITO. The full $700 offset applies if your income is $37,500 or less, which covers a lot of students in casual or part-time work.
What if my tax offset is larger than my tax bill?
+
For non-refundable offsets like LITO, the offset reduces your tax to zero and the remainder is lost. You don't receive the excess as a cash payment. Refundable offsets (like franking credits) work differently: any excess is paid back to you.
Does the Medicare levy get reduced by LITO?
+
No. LITO reduces your income tax, not the Medicare levy. The two are separate charges. Your Medicare levy is calculated at 2% of your taxable income and is not affected by LITO. There is a separate Medicare levy reduction for low-income earners, but that's a different mechanism.
📚 Recommended reading
The Barefoot Investor
Scott Pape
The Barefoot Investor
Scott Pape
Australia's best-selling money book ever. A simple system for accounts, budgeting, debt and a real emergency fund in one.
Making Money Made Simple
Noel Whittaker
Making Money Made Simple
Noel Whittaker
Australia's classic, comprehensive money guide covering tax, super and investing, updated for today.
Retirement Made Simple
Noel Whittaker
Retirement Made Simple
Noel Whittaker
Australia's godfather of personal finance demystifies super, the pension and making your savings last. The plain-English retirement handbook every Aussie should read before they stop working.
Some links above are affiliate links. If you buy through them, Snowball Invest may earn a small commission at no extra cost to you. We only recommend books we'd suggest anyway.
Sources
This article is general information only and does not constitute financial or tax advice. Offset amounts, thresholds and rules change over time, so check the latest ATO guidance and speak to a registered tax agent about your own situation.
Was this article useful?
Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
LinkedIn →Related articles
Tax Brackets Australia: How Marginal Tax Rates Actually Work
How tax brackets and marginal rates work in Australia. The 2024-25 brackets, a worked $90k example, effective vs marginal rate, and what Stage 3 changed.
The Tax-Free Threshold Explained ($18,200)
Australia's tax-free threshold is $18,200. Who can claim it, how to claim it from the right employer, what happens with a second job, and how to fix mistakes.
How to Lodge Your Tax Return in Australia (Step by Step)
Lodge your 2024-25 tax return via myTax or a tax agent. Deadlines, a step-by-step myTax walkthrough, refund timing, and what happens if you lodge late.