Low Income Tax Offset (LITO) for 2026–27

How much is the low income tax offset?

LITO depends only on your taxable income, the figure left after deductions. The ATO's schedule, which is the same for 2025–26 and 2026–27, works like this:

• $37,500 or less: the maximum offset of $700.
• $37,501 to $45,000: $700 minus 5 cents for every $1 above $37,500.
• $45,001 to $66,667: $325 minus 1.5 cents for every $1 above $45,000.
• More than $66,667: nil. At $66,667 itself the formula works out to less than a cent.

LITO at common incomes in 2026–27

The table shows the offset, the income tax before and after it, and the Medicare levy, for a resident with no other offsets. Figures come from the same engine as our income tax calculator.

How LITO is applied (and what it cannot do)

LITO is a non-refundable tax offset. In the ATO's words, it "can only reduce your tax payable to $0. It is not a separate payment. Any unused amount can't be refunded." Someone with $20,000 of taxable income has only $270 of tax before the offset. They use $270 of LITO, and the rest of the $700 is lost.

It also does not reduce the Medicare levy. Offsets come off income tax, and the levy is added afterwards. The ATO's worked examples show this order: income tax, less LITO, plus Medicare levy. That is why someone can have nil income tax and still owe some levy once their income is above the Medicare low-income threshold.

You will see the amount on your notice of assessment under "Less non-refundable tax offsets". There is no label to fill in for LITO in myTax and no form to lodge.

Who is eligible for the low income tax offset?

The ATO lists three conditions: you are an Australian resident for tax purposes, you pay tax on your taxable income, and your taxable income is below the cut-out. Age, job type and how you earn the income do not matter. Wages, ABN income, interest, rent and taxable Centrelink payments all count towards the same taxable income figure. Foreign residents for tax purposes cannot get LITO.

LITO is very common. ATO Taxation statistics 2023–24 (published 17 June 2026) record 6,463,811 individuals receiving it in the 2023–24 income year, with an average of $396 and a median of $333.

LITO and your effective tax rate

The taper means the true tax on an extra dollar is higher than the bracket rate while LITO is phasing out. Between $37,500 and $45,000, each extra dollar costs 15% tax plus 5% of lost offset, 20% before the Medicare levy. Between $45,000 and $66,667, it is 30% plus 1.5%, which is 31.5%, or 33.5% with the levy.

The same works in reverse for deductions. Take a resident on $50,000 who claims $2,000 of work-related deductions. Taxable income falls to $48,000, LITO rises from $250 to $280, and total tax and levy falls by $670. That is more than the 30% bracket rate alone would suggest.

Worked example: LITO and the Medicare levy at $32,000

Take a resident with $32,000 of taxable income in 2026–27. Step 1, tax at the resident rates: $2,070 (15% of the $13,800 above the threshold). Step 2, subtract LITO: the full $700, because income is under $37,500, which leaves $1,370 of income tax. Step 3, add the Medicare levy. The income is between the single low-income thresholds of $28,011 and $35,013 (the 2025–26 figures, used until the ATO publishes the 2026–27 thresholds), so the levy is reduced to 10 cents for each dollar above $28,011: $399 instead of the full $640. Total: $1,769, an average rate of 5.5%.

Everything withheld during the year above that amount is refunded on the notice of assessment. Anything below it becomes a bill. LITO affects only step 2.

Tax after LITO: 2025–26 vs 2026–27

LITO did not change on 1 July 2026, but the first-band rate fell from 16% to 15%, so income tax after the offset is lower at every income shown. Use the 2025–26 column for the return you are lodging now and the 2026–27 column for this year's pay.

LITO stretches the tax-free threshold

Combined with the $18,200 tax-free threshold, the full $700 offset means a resident pays no income tax until taxable income is about $22,866 in 2026–27. In 2025–26, with the first-band rate at 16%, the figure was about $22,575. The 1 July 2026 rate cut lifted it because the same $700 now covers more income at the lower rate.

Seniors and pensioners may also qualify for the seniors and pensioners tax offset (SAPTO). It is assessed separately and can apply together with LITO. See our SAPTO guide.

Common mistakes with LITO

• Expecting it as a refund. LITO only reduces tax you would otherwise pay. A large refund at low incomes comes from the tax withheld during the year, not from LITO.
• Forgetting other income. Interest, a side business or a second job counts towards taxable income and can reduce or remove your offset.
• Thinking it reduces the Medicare levy. The levy has its own low-income reduction, which is separate from LITO.