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Note: In the 2019 Federal Budget the coalition government proposed increasing the LITO rate from 1 July 2022. This has now passed Parliament and will soon be legislated.
The Low Income Tax Offset (LITO) means working Australians can earn up to $20,452 before they need to pay any income tax. It was introduced by the Government in 1993. Because it is a tax offset, it can only be used to lower the amount of tax that you owe and not to generate a tax refund or pay your Medicare Levy.
If you’re eligible, the ATO will apply the LITO as well as the Low and Middle Income Tax Offset (LMITO). They’ll also apply the tax free threshold of $18,200.
Who’s eligible for LITO
Your eligibility for LITO depends on your taxable income. If you earn less than $66,667 you’ll get some LITO. If you earn $37,000 or less, you’ll get the full LITO of $445.
If you’re eligible for the LITO, you don’t need to do anything. The Australian Taxation Office (ATO) will apply the offset when you lodge your tax return.
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LITO income thresholds
These are the current income thresholds, covering the 2018/2019, 2019/2020, 2020/2021 and 2021/2022 years.
|$37,000 or less||$445|
|$37,001 to $66,667||$445 less ((Taxable Income minus $37,000) x 1.5%)|
|More than $66,667||Nil|
The following examples show how the ATO applies the LITO.
Howard’s taxable income for the 2018/2019 income year is $20,542. Because Howard’s income is less than $37,000, he gets $445 in LITO.
The ATO works out the tax he needs to pay as follows:
- $20,542 – $18,200 (tax free threshold) = $2,342
- $2,342 x 19% = $445
- $445 less $445 (LITO) = $0
Because Howard’s income is low, he doesn’t need to pay any tax. He also doesn’t need to pay the Medicare Levy because he is within the Medicare Levy low income threshold.
LITO amounts from 2022/2023 onwards
From 1 July 2022, new thresholds and rates will apply for the LITO.
The LITO changes announced in the 2019 Federal Budget and passed through the senate on 4 July 2019 are as follows:
|Income for the 2022/23 and later income years||New Low Income Tax Offset amount|
|$37,000 or less||$700|
|$37,001 to $45,000||$700, less 5% of the income that exceeds $37,000|
|$45,001 to $66,667||$300, less an amount equal to 1.5% of the income that exceeds $45,000|
LITO amounts from previous years
|Financial years||Maximum offset||Full entitlement||Effective tax-free threshold||Phasing-out rule|
|2012/13 to 2018/19||$445||Income $37,000 or below||$20,542||$37,000 – $66,667|
|2011/12||$1,500||Income $30,000 or below||$16,000||$30,001 – $67,500|
LITO and minors (people under 18)
There are different rules when applying LITO for people under 18 (minors). The LITO does not apply to unearned income that people under 18 may receive. An example of unearned income is part of a family trust being given to a person under 18.
The reason LITO does not apply is because the ATO does not want parents to pass their earnings to their children without paying the correct tax.
Thresholds and rates for unearned income of minors
|$0 – $416||Nil|
|$417 – $1,307||66%|
|More than $1,307||45% on the total amount of income that is not excepted income|
When the rates don’t apply
There are some situations where these rates don’t apply. These can be due to a situation the person is in or due to their type of income. When this happens, the ATO taxes a person under 18 at the adult tax rate and gives them access to the tax free threshold of $18,200.
Types of incomes the rates don’t apply to
Excepted income includes income from:
- Taxable pensions or payment from Centrelink or the Department of Veteran’s Affairs
- Compensation, superannuation or pension fund benefits
- A deceased estate
- Property transferred to the person as a result of the death of another person or family breakdown
- Damages for personal injury
- Business income
- Income from a partnership where the person was an active partner
Situations where these rates don’t apply
If a person under 18 (minor) meets any of the following conditions, they will not have to pay the higher rates of tax:
- They were working full time
- They had worked full time for 3 months or more in the current year and intending to work full time for most or all of the next year and not intending to study dull time in the next year
- They were able to get disability support pension or rehabilitation allowance, or someone was able to get a carer allowance to care for them
- They were permanently blind
- They were disabled and were likely to suffer from that disability permanently or for an extended period
- They were entitled to a double orphan pension and got little or no financial support from relatives
- They were unable to work full time because of a permanent mental or physical disability and got little or no financial support from relatives.
Caylan is 15 years old and an Australian resident. She has $19,200 of excepted income and $4,000 in other income.
The ATO will take the following steps to work out how much tax Caylan has to pay.
Tax on excepted income
- $19,200 (excepted income) less $18,200 (tax-free threshold)) = $1,000
- $1,000 × 19% (tax rate) = $190
- $190 (tax payable) less $445 (Low Income Tax Offset) = $0
Because Caylan’s taxable excepted income is less than $37,000, she can get the maximum rate of Low Income Tax Offset (LITO) of $445. However, the offset will only reduce her tax payable on excepted income $190 to $0. With this offset, Caylan will not have to pay tax on her excepted income.
Tax on other income
- $4,000 (other income) × 45% (tax rate) = $1,800.
Because Caylan’s other income is over $1307, the total amount of $4,000 is taxed at 45%.
The LITO can’t lower the tax Caylan has to pay on her other income. This means she needs to $1,800 in tax.
The net amount payable by Caylan is therefore $1,800.
Don’t confuse LITO with LAMITO or LISTO
Superannuation and tax have many acronyms, and it’s easy to confuse LITO with LAMITO (Low and Middle Income Tax Offset) or LISTO (Low Income Superannuation Tax Offset).
- LAMITO is a new temporary tax offset applying between 1 July 2018 and 30 June 2022. For more information see SuperGuide article Guide to the Low and Middle Income Tax Offset (LMITO)
- LISTO is a refund of superannuation contributions tax payable by low-income taxpayers. For more information see SuperGuide article Superannuation tax refund: 10 things to know about LISTO.
Disclaimer: The contents of this article are for the purposes of providing general information only. Persons should seek appropriate advice from a licensed financial planner before undertaking any investments or strategies with respect to their superannuation interests.
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