Tax and Structures


Individual taxation

Rebates

The gross tax payable may also be reduced by certain tax credits (also known as rebates), such as:

  • low income tax offset
  • low and middle income tax offset
  • spouse contribution tax offset
  • pension and annuity tax offset
  • senior and pensioner tax offset
  • private health insurance rebate
  • dividend franking credits
  • foreign tax credits.

A tax offset reduces the gross tax you pay (known as your tax payable) on your taxable income. It is important to note that most tax offsets can only reduce the gross tax you pay to $0 (zero). Apart from the dividend franking credit which will be discussed below, you are not eligible for a tax refund as a result of a tax offset reducing your gross tax payable.

The low income tax offset and low and middle income tax offset are briefly described below.

Eligibility for the low income tax offset (LITO) depends upon the level of taxable income. The maximum tax offset of $700 will apply if taxable income is $37,500 or less. This amount is reduced by 5 cents for each dollar for taxable incomes between $37,500 and $45,000, and then reduced by a further 1.5 cents for each dollar of taxable incomes between $45,001 and $66,667. The offset cuts out entirely once taxable income exceeds $66,667.

Taxpayers were also eligible for the low and middle income tax offset (LMITO)prior to the 2022/23 year also depends upon the level of taxable income. The LMITO was initially designed to end on 30 June 2021 but legislation was then passed during the 2021 year to extend the tax offset by a further 12 months to June 2022. Accordingly, eligibility to the LMITO is set to end on 30 June 2022 and will not be further extended.

Rates for the Low & Middle Income Tax Offset are as follows:

Taxable income 

Maximum size of tax offset

$0-$37,000

$255

$37,001-$48,000

$255 plus 7.5% of the amount in excess of $37,000, up to a maximum total of $1,080

$48,001-$90,000

$1,080

$90,001-$126,000

$1,080 minus 3% of the amount in excess of $90,000

Entitlement to the LMITO ceases once your taxable income exceeds $126,000.

As announced in the 2022–23 Federal Budget, the LMITO has been increased by $420 for the 2021–22 income year taking the maximum offset to $1,500 for individuals and $3,000 for couples. The LMITO for the 2021-22 income year will be paid from 1 July 2022 depending upon when individuals lodge their tax returns for the 2021-22 income year.

To recap on our example of Fred, we’ve calculated Fred’s assessable income and his ultimate tax payable in the table opposite for the 2022/23 financial year, excluding the LMITO which no longer applies.