# Low income tax offset (LITO)

Source: https://calculatax.com/tax/low-income-tax-offset/
Title: Low Income Tax Offset (LITO) 2026-27 + Calculator
Last updated: 2026-11-06

The low income tax offset (LITO) is worth up to **$700** in 2026-27 for taxable incomes of $37,500 or less, then shrinks to nil at $66,667. See the [ATO low income tax offset page](https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/tax-offsets/low-income-tax-offset). This calculator shows your offset and the tax left after it. On $41,000, LITO is $525.

| Default result: $41,000 taxable income | Amount |
|---|---|
| Income tax before offsets | $3,420 |
| Low income tax offset | $525 |
| Income tax after LITO | $2,895 |
| Medicare levy (2%) | $820 |
| Total tax | $3,715 |
| Take-home pay | $37,285 |

*2026-27 resident rates, no HELP debt. Source: ATO; Calculatax calculation.*

LITO is one of the offsets that sit inside [income tax in Australia](https://calculatax.com/tax/), applied after the bracket rates and before the Medicare levy is added.

## Up to $700, then reducing above $37,500

LITO has three ranges. You get the maximum up to $37,500, then two phase-out rates bring it down to zero.

| Taxable income | LITO |
|---|---|
| $37,500 or less | $700 |
| $37,501 to $45,000 | $700 minus 5c for every $1 above $37,500 |
| $45,001 to $66,667 | $325 minus 1.5c for every $1 above $45,000 |
| $66,667 and above | Nil |

*Low income tax offset ranges, 2026-27 (no change announced from the current ATO figures). Source: ATO.*

### How $41,000 gets to a $525 offset

A resident with taxable income of $41,000 is $3,500 above $37,500, so the offset falls by $3,500 × 5c = $175, leaving $525. Income tax before offsets is $3,420 ($22,800 at 15%). After LITO it's $2,895, and the 2% Medicare levy of $820 brings the total to $3,715.

On the same income in 2025-26 the total was $3,943, so the 15% rate saves this earner $228.

| Taxable income | LITO | Income tax before LITO | Offset actually used |
|---|---|---|---|
| $20,000 | $700 | $270 | $270 |
| $30,000 | $700 | $1,770 | $700 |
| $37,500 | $700 | $2,895 | $700 |
| $41,000 | $525 | $3,420 | $525 |
| $45,000 | $325 | $4,020 | $325 |
| $50,000 | $250 | $5,520 | $250 |
| $60,000 | $100 | $8,520 | $100 |
| $66,667 | $0 | $10,520 | $0 |

*2026-27 resident rates. Source: Calculatax calculation from ATO figures.*

The first phase-out is steep. Between $37,501 and $45,000, every extra dollar costs 5 cents of offset on top of 15% tax, so the effective rate is 20% before the Medicare levy. The second range is gentler: the offset falls by $15 for each extra $1,000, so at $55,000 it's $175.

> **Deductions inside the first range are worth more than the tax rate suggests.** A $2,000 deduction at $41,000 cuts income tax by $300, adds $100 to LITO and trims the levy by $40, a saving of $440. The [marginal tax rate calculator](https://calculatax.com/tax/marginal-tax-rate-calculator/) shows the full effect at any income.

## The real tax-free threshold once LITO is applied

With LITO, a resident pays no income tax on taxable income up to $22,866 in 2026-27. The $18,200 threshold is the headline figure, and the offset covers the 15% tax on the next $4,666.

The exact sum is $18,200 + ($700 ÷ 15%) = $22,866.67, so tax first appears from $22,867. Spread over a full year, that's about $440 a week.

By contrast, a full-time worker on the national minimum wage of $1,004.90 a week earns $52,254.80 a year, and keeps only $216.18 of LITO.

The Medicare levy runs on its own threshold. Under the latest announced (2025-26) figures, a single person pays no levy up to $28,011, so someone earning $25,000 pays $320 of income tax and no levy.

**The real threshold in 2026-27**

| Step | Working | Amount |
|---|---|---|
| Tax-free threshold |  | $18,200 |
| Covered by the $700 offset | At 15% | +$4,666 |
| **No income tax up to** |  | **$22,866** |

- **$22,575**: Threshold in 2025-26 (When the rate was 16%. The rate cut lifted it by $291.)
- **$23,200**: Threshold from 1 July 2027 (When the rate falls to 14%, as long as LITO stays at its current level.)

## LITO cannot create a refund by itself

LITO is non-refundable. It can reduce income tax to zero, but any part of the $700 left over is lost.

At $20,000 of taxable income, tax before offsets is $270. LITO wipes that out, and the other $430 of the offset isn't paid to you.

LITO also can't be used against the Medicare levy, and unlike SAPTO, an unused amount can't be transferred to a spouse.

### Where refunds actually come from

Refunds come from tax withheld during the year. A $41,000 salary paid weekly has $80 withheld each week, $4,160 over the year, against an assessed $3,715. The $445 difference comes back after lodging, and LITO is one reason the assessment is lower than the withholding.

## Who misses out on LITO

Anyone with taxable income of $66,667 or more gets nothing. Between $45,001 and $66,666 the amount is small: $100 at $60,000 and just $10 at $66,000.

People whose income is under $18,200 get no practical benefit, because they have no income tax to offset. Seniors may get more through the separate Seniors and Pensioners Tax Offset, which the [SAPTO calculator](https://calculatax.com/tax/sapto-calculator/) estimates alongside LITO.

### Foreign residents and working holiday makers

LITO is for Australian residents for tax purposes, so foreign residents don't get it. They also have no tax-free threshold, so their tax starts at 30% from the first dollar.

Working holiday makers are taxed under their own scale from the first dollar. A working holiday maker who's a foreign resident for tax purposes can't get LITO. The ATO says one who's an [Australian resident from a non-discrimination agreement country](https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/coming-to-australia/taxation-of-australian-resident-whms-from-nda-countries) may be eligible.

The [working holiday maker tax calculator](https://calculatax.com/tax/working-holiday-maker-tax-calculator/) applies the 15% rate from $1 to $45,000.

## LITO, the old LMITO and the coming Working Australians Tax Offset

### LITO today

LITO's current maximum is $700, and the ATO has announced no change to it for 2026-27. It's assessed per person, so a partner's income makes no difference: two partners earning $40,000 each get $575 each.

### LMITO, now ended

The low and middle income tax offset (LMITO) was a separate, temporary offset that sat on top of LITO for middle incomes. Its last year was 2021-22, when a one-off $420 cost of living offset lifted the full amount to $1,500. The ATO's [low and middle income earner tax offsets](https://www.ato.gov.au/forms-and-instructions/low-and-middle-income-earner-tax-offsets) page records this. It isn't available from 2022-23 onwards.

### WATO, from 2027-28

From 2027-28, a new Working Australians Tax Offset (WATO) of up to $250 a year begins. Schedule 3 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 made it law. It doesn't apply to 2026-27.

WATO is for residents with net labour income above the tax-free threshold. It's non-refundable and applies only when tax on net labour income is above $250. A worker on $41,000 would meet the $250 tax test easily, since income tax before offsets at the 14% rate would be $3,192.

Other offsets, including WATO, are compared under [tax offsets](https://calculatax.com/tax/tax-offsets/).

## What the LITO calculator does not cover

The calculator assumes a full-year resident and a single taxable income figure. It doesn't apply other offsets, such as SAPTO or the private health insurance rebate, which can change how much of LITO is used.

It doesn't model the family Medicare levy thresholds or a HELP repayment. Income from a business, trust or capital gain counts towards taxable income and so reduces LITO, even though the calculator takes only the final total.

## LITO questions: what it is, the end of LMITO, claiming and part-year income

### What is the low income tax offset?

It's a reduction in income tax for residents on lower incomes. In 2026-27 it's $700 for taxable income up to $37,500, falls to $325 at $45,000, and reaches nil at $66,667. It reduces income tax only, not the Medicare levy, and can't be paid out as a refund on its own.

### Why was the low and middle income tax offset removed?

The low and middle income tax offset (LMITO) was designed as a temporary measure with a set end date, and the government didn't continue it after that date. The ongoing low income tax offset of up to $700 continues. From 2027-28, workers can also receive the new Working Australians Tax Offset of up to $250 a year.

### Do you have to claim LITO?

No. There's no label to fill in and nothing to ask your employer for. The ATO works out the low income tax offset from your taxable income when it processes your return. On $41,000 in 2026-27 it applies $525 automatically, and the result shows on your notice of assessment.

### Do you get LITO if you only worked part of the year?

Yes, and it often helps. LITO is based on taxable income for the whole year. Someone earning $1,500 a week for 20 weeks has $30,000 of income and the full $700 offset. Their employer withheld $5,980, but assessed tax is $1,268.90, so about $4,711 comes back if nothing else changes.

*Estimates only, based on published rates for 2026-27. General information, not tax or financial advice.*

## Sources

- [ATO: Low income tax offset](https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/tax-offsets/low-income-tax-offset)
- [ATO: Tax rates, Australian residents](https://www.ato.gov.au/tax-rates-and-codes/tax-rates-australian-residents)
- [ATO: Working Australians Tax Offset](https://www.ato.gov.au/about-ato/new-legislation/in-detail/individuals/working-australians-tax-offset)
- [ATO: Taxation of Australian resident WHMs from NDA countries](https://www.ato.gov.au/individuals-and-families/coming-to-australia-or-going-overseas/coming-to-australia/taxation-of-australian-resident-whms-from-nda-countries)
- [ATO: Low and middle income earner tax offsets](https://www.ato.gov.au/forms-and-instructions/low-and-middle-income-earner-tax-offsets)