Australian Tax Offsets Explained: Current, Past and New Offsets

Many Australians miss tax offsets they may be entitled to, potentially reducing their tax refund or increasing the amount of tax they pay.

Australia's tax system includes a wide range of tax offsets for employees, retirees, investors, sole traders and small business owners. Some offsets remain available today, while others have been abolished or phased out and new ones have recently been introduced.

Understanding how tax offsets work, who can claim them and the eligibility rules that apply can help you avoid overpaying tax and better understand your position at tax time.
 

What is a tax offset?

A tax offset, sometimes called a tax rebate or tax credit, is an amount that directly reduces the amount of income tax you would otherwise have to pay.

For example, if your income tax liability is $5,000 and you are entitled to a $700 tax offset, your tax liability may be reduced to $4,300.

Tax offsets are applied after taxable income and the tax payable on that income have been calculated.

Many Australians confuse tax offsets with tax deductions, but they work differently.
 

Tax deductions	Tax offsets
Reduce taxable income	Reduce tax payable
Taken into account before tax is calculated	Applied against tax after it is calculated
Value generally depends on your marginal tax rate	Generally reduce tax dollar-for-dollar, subject to the rules of the particular offset
Example: deductible work-related expenses	Example: low income tax offset

 
In simple terms, tax deductions reduce the income you are taxed on, while tax offsets reduce the actual amount of tax payable.

Because tax offsets and tax deductions work differently, many Australians incorrectly assume they provide the same tax benefit. An H&R Block Tax Expert can help identify which deductions and offsets may apply to your circumstances.
 

Refundable vs non-refundable tax offsets

Most Australian tax offsets are non-refundable. This means they can reduce your income tax liability to zero, but any unused amount generally isn't paid to you as a separate refund or carried forward, unless the particular offset has specific rules allowing this.
 
Examples of non-refundable offsets include:
 

• low income tax offset (LITO)
• seniors and pensioners tax offset (SAPTO)
• small business income tax offset
• spouse super contribution tax offset
• zone tax offset.

 
Some tax offsets are refundable. These can potentially produce or increase a refund even where the offset exceeds the tax otherwise payable.
 
Examples include certain:
 

• private health insurance rebate entitlements
• franking credits
• refundable R&D tax offsets for eligible companies.

 

Current tax offsets available in Australia

Some tax offsets are calculated automatically, while others depend on factors such as your income, age, super contributions, private health insurance or business structure.
 

1. Low income tax offset (LITO)

The low income tax offset helps reduce tax payable for eligible low-income earners.

Under the current rules:
 

Taxable income	LITO amount
Up to $37,500	Maximum offset of $700
$37,501 to $45,000	$700, reduced by 5 cents for every $1 above $37,500
$45,001 to $66,667	$325, reduced by 1.5 cents for every $1 above $45,000
Above $66,667	No LITO available

  
You generally don't need to separately claim LITO. The ATO calculates the amount when processing your tax return.

Even relatively small changes to taxable income can affect how much LITO you receive. H&R Block Tax Experts can help ensure your taxable income and deductions are correctly reported.
 

2. Seniors and pensioners tax offset (SAPTO)

The seniors and pensioners tax offset can reduce the amount of tax payable by eligible seniors and pensioners.

Eligibility depends on several conditions, including eligibility for an Australian Government pension or allowance and your rebate income. You may qualify even if you don't actually receive a pension because of the income or assets tests.

The current SAPTO cut-out thresholds are:
 

Status	SAPTO cut-out threshold
Single	$52,759
Each member of a couple living together	$43,810
Each member of an illness-separated couple	$50,052

 
The amount of SAPTO available depends on your rebate income and, where relevant, your spouse's circumstances.

Because SAPTO eligibility can become complicated where relationship status, pension eligibility, super income or investment income are involved, professional advice can be useful in determining the correct entitlement.
 

3. Private health insurance tax offset

The private health insurance rebate helps eligible taxpayers reduce the cost of private health insurance.

Eligibility and the amount of rebate depend on factors including whether you hold an appropriate complying private health insurance policy, your age and your income for surcharge purposes.

For 2025–26, the income tiers are:
 

Status	Base tier	Tier 1	Tier 2	Tier 3
Single	$101,000 or less	$101,001–$118,000	$118,001–$158,000	$158,001 or more
Family	$202,000 or less	$202,001–$236,000	$236,001–$316,000	$316,001 or more

 
The family threshold increases by $1,500 for each Medicare levy surcharge dependent child after the first.

Generally, the higher your income tier, the lower the rebate percentage. At Tier 3, no private health insurance rebate is available.

Incorrect private health insurance details can result in tax return adjustments, particularly where too much rebate has been claimed through reduced premiums during the year.
 

4. Small business income tax offset

The small business income tax offset applies to eligible individuals rather than companies.

You may qualify if you are:
 

• carrying on a small business as a sole trader; or
• an individual receiving a qualifying share of net small business income from a partnership or trust.

 
Current rules provide:
 

Rule	Details
Aggregated turnover threshold	Less than $5 million
Offset rate	16% of the income tax attributable to eligible net small business income
Maximum offset	$1,000 per year

 
The ATO generally calculates the offset from information included in your tax return.

Importantly, not every amount received from a small business partnership or trust necessarily qualifies. Specific rules apply to determining net small business income.
 

5. Low income super tax offset (LISTO)

The low income super tax offset effectively refunds some or all of the contributions tax paid on eligible concessional super contributions for low-income earners.

Under the current rules:
 

• your adjusted taxable income generally needs to be $37,000 or less
• the maximum LISTO is $500
• the amount is generally paid directly into your super fund.

 
Different rules and thresholds may apply in future income years, so taxpayers should check the rules applying to the particular year for which they are lodging.
 

6. Superannuation spouse contribution tax offset

You may be eligible for this offset if you make eligible after-tax super contributions on behalf of your spouse.
 
Under the current rules:
 

Spouse income	Offset outcome
$37,000 or less	Full offset potentially available
$37,001 to less than $40,000	Partial offset potentially available
$40,000 or more	No offset available

 
The maximum offset is $540 and is calculated at 18% of eligible spouse contributions, subject to the relevant limits and eligibility conditions.
 

7. Foreign income tax offset

The foreign income tax offset can help reduce double taxation where foreign tax has been paid on income or gains that are also included in assessable income in Australia.

You may be eligible where:
 

• an amount is included in your Australian assessable income; and
• you have paid foreign income tax in respect of that amount.

 
If your total foreign income tax offset claim is $1,000 or less, you generally don't need to calculate the foreign income tax offset limit.

If you want to claim more than $1,000, you generally need to calculate your foreign income tax offset limit.  

8. Zone tax offset

The zone tax offset may be available to taxpayers whose usual place of residence is in a prescribed remote or isolated area of Australia.

Importantly, merely working in a remote area isn't enough. The rules are based on where you usually reside rather than simply where your employment is located.

Generally, the relevant residence requirements need to be satisfied for at least 183 days, although rules can also apply where qualifying periods span more than one income year.

The amount available depends on factors including:
 

• whether your usual place of residence is in Zone A, Zone B or a special area
• your circumstances and any relevant dependant component.

  

Other specialised tax offsets

Several other tax offsets may apply depending on your circumstances.
 

Overseas forces tax offset

May apply to eligible Australian Defence Force personnel or members of United Nations armed forces serving in specified overseas localities.
 

Invalid and invalid carer tax offset

May apply where you maintain certain eligible dependants who are invalids or carers, subject to the relevant conditions.
 

Beneficiary tax offset

May apply where you receive certain taxable Australian Government pensions, allowances or payments.
 

Special disability trust beneficiary tax offset

May apply to the principal beneficiary of a special disability trust where tax has been paid by the trustee in relevant circumstances.
 

Early-stage investor tax offset

Eligible investors in qualifying early-stage innovation companies may receive a non-refundable carry-forward tax offset, generally equal to 20% of eligible investments and subject to applicable caps and eligibility requirements.
 

Exploration credits tax offset

May apply where you receive exploration credits from an eligible mineral exploration company.
 

Research and development tax offset

The research and development tax incentive provides tax offsets to eligible companies conducting registered R&D activities.

The applicable rate and whether the offset is refundable or non-refundable depend on factors including the company's aggregated turnover and, for larger companies, its R&D intensity.
 

Tax offsets by occupation or situation

The offsets potentially available to you depend on your personal and financial circumstances rather than simply your occupation.
 

Employees

Employees may potentially benefit from:
  

• low income tax offset
• private health insurance rebate
• other offsets depending on their individual circumstances.

 
Medicare levy reductions and exemptions may also apply, although technically these are not tax offsets.
 

Retirees and pensioners

Retirees and pensioners may qualify for:
 

• seniors and pensioners tax offset
• private health insurance rebate
• other offsets depending on their circumstances.

 
Medicare levy reductions or exemptions may also be relevant.
 

Sole traders and small business owners

Eligible individuals may qualify for:
 

• small business income tax offset
• spouse super contribution tax offset
• foreign income tax offset
• other offsets depending on their circumstances.

 

Investors

Investors may benefit from:
 

• foreign income tax offset
• refundable franking credits, where eligible
• early-stage investor tax offset
• exploration credits tax offset.

 

Remote and regional residents

Taxpayers whose usual place of residence is in a qualifying remote area may be entitled to the zone tax offset. An overseas forces tax offset can apply in different circumstances to qualifying overseas service.
 

New tax measures

The 2026–27 Federal Budget announced several major tax changes. Importantly, two measures particularly relevant to individual taxpayers – the Working Australians Tax Offset and the $1,000 standard deduction for work-related expenses – have since been legislated.
 

1. Working Australians Tax Offset (WATO) from 2027–28

The new Working Australians Tax Offset will apply from the 2027–28 income year.

Broadly, it provides eligible Australian resident individuals who derive qualifying labour income with a non-refundable tax offset of up to $250.

The offset is designed to provide additional tax relief to working Australians and will be calculated through the tax return system.

Because the detailed entitlement depends on the legislation, taxpayers should check the rules applying to their particular income and circumstances rather than assuming that earning any form of income automatically qualifies for the full $250.
 

2. $1,000 standard deduction from 2026–27

A new standard deduction for work-related expenses applies from the 2026–27 income year.

This isn't a tax offset. Instead, it is a deduction that reduces taxable income before tax is calculated.

Broadly, eligible Australian resident individuals deriving qualifying labour income can choose to claim a standard deduction of $1,000 rather than claiming their actual eligible work-related expenses under the ordinary rules.

Taxpayers whose eligible actual deductions exceed $1,000 can continue to claim under the ordinary rules, subject to the normal substantiation requirements.

Importantly, the new rules don't mean every taxpayer automatically receives $1,000 back at tax time. It is a deduction, not a $1,000 tax refund.
 

Medicare levy low-income thresholds

Medicare levy low-income thresholds are periodically increased to ensure low-income taxpayers remain exempt from, or pay a reduced amount of, the Medicare levy.

Although Medicare levy reductions and exemptions are not tax offsets, they can have a significant impact on the final amount of tax payable.

Taxpayers should use the thresholds applying to the particular income year being lodged.
 

Tax offsets that no longer apply

Some tax offsets available in previous years have been abolished or phased out.
 

Tax offset	Status
Low and middle income tax offset (LMITO)	Ended after the 2021–22 income year
Mature age worker tax offset	Abolished
Net medical expenses tax offset	Phased out
Entrepreneurs' tax offset	Abolished
Dependent spouse tax offset	Phased out, subject to historical/transitional rules

 
LMITO was one of the most widely claimed temporary offsets and provided eligible individuals with up to $1,500 in its final year.
 

How to claim tax offsets

Some tax offsets, such as LITO and the small business income tax offset, are generally calculated by the ATO using information provided in your tax return.

Others require relevant information to be included in the return, which may include:
 

• private health insurance information
• spouse income and super contribution details
• foreign income and foreign tax paid
• net small business income
• eligible government payments
• R&D registration and expenditure information.

  

Common tax offset mistakes

Common mistakes include:
 

• assuming an offset still exists when it has been abolished
• confusing tax deductions with tax offsets
• failing to check income thresholds
• forgetting to include relevant spouse, super or private health insurance information
• assuming all tax offsets are refundable
• assuming an offset is available simply because you fall within a particular occupation or demographic group.

  

Need help identifying which tax offsets apply to you?

Tax offset eligibility can vary depending on your income, private health insurance, super contributions, spouse income, investments and business structure.

H&R Block Tax Experts can review your circumstances, identify tax offsets you may qualify for and help ensure your tax return is lodged correctly.

Book an appointment online or connect with one of our Online Tax Experts today.