The low income tax offset (LITO) is a tax offset — not a deduction or a rebate you have to claim — that reduces the income tax payable by lower and middle-income earners. It sits on top of the tax-free threshold and works alongside the tax brackets rather than replacing them.
How Much It's Worth
LITO is worth up to $700 a year, available in full to anyone with a taxable income of $37,500 or less in 2026–27. Above that, it tapers off in two stages: first at 5 cents per dollar, then at 2 cents per dollar once you pass $45,000. By around $66,667, the offset has phased out to zero.
For example, on a $40,000 taxable income, the offset is worth about $575 — already partway through the first taper.
Why It Exists
LITO effectively raises the point at which people start paying meaningful net tax, on top of the tax-free threshold itself. It's one of several mechanisms (alongside the tax-free threshold and, for some taxpayers, the seniors and pensioners tax offset) that keep the effective tax rate low for people on modest incomes.
What It Doesn't Do
- It doesn't reduce the Medicare levy, which is calculated separately.
- It can't take your tax bill below zero or generate a refund by itself.
- It's not means-tested on anything other than your own taxable income — family income doesn't factor in.
Our Income Tax Calculator Australia applies LITO automatically and shows exactly how much it saves you, alongside a full bracket-by-bracket breakdown of your tax. LITO is just one of several offsets available — see our Tax offsets explained for the others.
Sources: ATO — tax rates for Australian residents.