Low Income Tax Offset (LITO)

What Is the Low Income Tax Offset (LITO)?

The "Low Income Tax Offset" is a non-refundable Australian tax offset that reduces income tax by up to $700 for residents earning $66,667 or less in FY2025-26.

LITO operates as a direct dollar-for-dollar reduction of your calculated income tax liability. The Australian Taxation Office (ATO) applies it automatically when you lodge your tax return — no separate application, no special form, no eligibility test beyond your taxable income figure. Every Australian tax resident whose assessable income falls under the $66,667 cut-off receives some amount of LITO.

Because LITO is non-refundable, it reduces your tax bill to a minimum of $0 but never generates a cash refund on its own. A taxpayer who owes $400 in income tax and qualifies for the full $700 LITO receives a $400 reduction, not a $300 payment. This distinguishes LITO from refundable offsets such as the franking credit refund available to shareholders.

LITO affects approximately 7.2 million Australian tax returns each year, covering part-time workers, entry-level employees, retirees drawing modest superannuation pensions, and sole traders with lower assessable income. Use our Income Tax Calculator to see how LITO interacts with your marginal tax rate and total taxation for the 2025-26 financial year.

How Is LITO Calculated?

LITO is calculated using a two-stage phase-out formula that reduces the offset from $700 to $0 as taxable income rises from $37,500 to $66,667.

The calculation uses two distinct phase-out rates across two income bands. The first phase-out reduces the offset at 5 cents per dollar earned above $37,500, lowering the LITO from $700 to $325 by the time income reaches $45,000. The second phase-out applies a gentler rate of 1.5 cents per dollar above $45,000, tapering the remaining $325 down to $0 at $66,667.

LITO Phase-Out Thresholds for FY2025-26

Step-by-Step LITO Formula

1. Determine your taxable income for the financial year (gross income minus allowable deductions).
2. If taxable income is $37,500 or less, your LITO is the full $700.
3. If taxable income falls between $37,501 and $45,000, calculate: $700 − (taxable income − $37,500) × 0.05.
4. If taxable income falls between $45,001 and $66,667, calculate: $325 − (taxable income − $45,000) × 0.015.
5. If taxable income exceeds $66,667, LITO equals $0.
6. Subtract the LITO amount from your calculated income tax. The result cannot go below $0.

The two-stage phase-out prevents a sharp cliff where the offset disappears overnight. A taxpayer earning $50,000 still receives a LITO of $250, softening the transition into higher income tax brackets. You can verify these calculations instantly using our Take-Home Pay Calculator.

Who Is Eligible for LITO?

Every Australian resident for tax purposes with taxable income of $66,667 or less is eligible for the Low Income Tax Offset in FY2025-26.

Eligibility is determined solely by two criteria: tax residency status and taxable income. The ATO does not impose age restrictions, employment type requirements, or asset tests. The following groups commonly qualify:

• Part-time and casual employees earning below the $66,667 threshold
• Full-time workers in entry-level, retail, hospitality, and aged care roles
• Self-employed sole traders with net business income under $66,667
• Retirees receiving taxable superannuation pensions or annuities
• Working holiday makers who qualify as Australian residents for tax purposes
• Students with part-time employment income

Non-residents are not eligible for LITO. Temporary residents classified as non-residents for tax purposes pay tax from the first dollar with no tax-free threshold and no LITO. Learn more about non-resident taxation in our Non-Resident Tax Guide.

LITO Amount Table by Income Level

The LITO ranges from $700 at $20,000 down to $0 at $66,668, with the sharpest reduction occurring between $37,500 and $45,000.

The table below shows the exact LITO amount and effective tax saving at representative income levels from $20,000 to $80,000 for the 2025-26 financial year.

Note: Income tax figures use FY2025-26 tax brackets for Australian residents claiming the tax-free threshold. Medicare levy is excluded from this table. Check our Australian Tax Brackets page for the full rate schedule.

How Does LITO Affect Take-Home Pay?

LITO increases take-home pay by reducing the income tax withheld from each pay cycle, adding up to $700 per year or $13.46 per week for eligible workers.

Your employer does not apply LITO as a separate line item on your payslip. Instead, the ATO’s PAYG Withholding Tables incorporate the LITO into the standard withholding amounts. When your employer withholds tax each pay cycle, the LITO reduction is already baked into the lower withholding figure.

Worked Example: $42,000 Annual Salary

An employee earning a gross salary of $42,000 in FY2025-26 receives the following treatment:

1. Taxable income: $42,000 (assuming no deductions for simplicity).
2. Income tax on $42,000: the first $18,200 is tax-free; the next $23,800 ($18,201 to $42,000) is taxed at 16% = $3,808.
3. LITO calculation: $42,000 falls between $37,501 and $45,000. LITO = $700 − ($42,000 − $37,500) × 0.05 = $700 − $225 = $475.
4. Tax after LITO: $3,808 − $475 = $3,333.
5. Medicare levy at 2%: $42,000 × 0.02 = $840.
6. Superannuation (SG at 12%): $42,000 × 0.12 = $5,040 (paid by employer on top of salary).
7. Annual take-home pay: $42,000 − $3,333 − $840 = $37,827.
8. Weekly take-home pay: $37,827 ÷ 52 = $727.44.

Without LITO, this employee would pay $3,808 in income tax instead of $3,333, reducing take-home pay by $475 per year or $9.13 per week. Verify your own scenario using the Weekly Pay Calculator.

LITO vs SAPTO — What Is the Difference?

LITO is available to all Australian residents earning under $66,667, while the "Seniors and Pensioners Tax Offset" (SAPTO) is restricted to taxpayers who meet Age Pension age and income requirements.

Both offsets are non-refundable and reduce income tax to a minimum of $0. The critical difference is that SAPTO and LITO can stack together, creating an even larger effective tax-free threshold for eligible seniors. A single senior who qualifies for both receives up to $700 (LITO) plus up to $2,230 (SAPTO), for a combined maximum offset of $2,930.

The combined effect of LITO plus SAPTO means a single Australian pensioner pays $0 income tax on the first $33,089 of taxable income. Couples where each member qualifies receive separate SAPTO amounts, each capped at $1,602. This stacking arrangement makes the Australian tax offset system one of the most generous for seniors among OECD countries.

How Does LITO Interact with the Tax-Free Threshold?

LITO raises the effective tax-free threshold from the official $18,200 to $22,575, meaning no income tax is payable on the first $22,575 of earnings.

The official Australian tax brackets set the tax-free threshold at $18,200. Income between $18,201 and $45,000 is taxed at 16% under the FY2025-26 rate schedule. LITO then offsets a portion of this tax, effectively extending the zero-tax zone.

Here is the mathematical proof:

1. An individual earns exactly $22,575.
2. The first $18,200 is tax-free.
3. The remaining $4,375 falls into the 16% tax bracket.
4. $4,375 × 16% = $700 in raw tax owed.
5. The ATO applies the full $700 LITO offset because income is under $37,500.
6. $700 tax owed − $700 LITO = $0 total tax.

Because of LITO, you don’t pay a single cent of income tax until you earn over $22,575.

This effective threshold changed on 1 July 2024 when the Stage 3 tax cuts reduced the lowest marginal rate from 19% to 16%. Before that date, the effective tax-free threshold was $21,884. The $691 increase benefits every Australian earning between $21,884 and $22,575 who previously owed a small amount of income tax.

How Is LITO Applied During the Year?

LITO is applied incrementally through the PAYG withholding system, spreading the offset across every pay cycle rather than delivering a lump sum at tax time.

Your employer’s payroll software follows the ATO’s PAYG Withholding Tables, which already incorporate the LITO mathematics. When you see your weekly, fortnightly, or monthly tax deducted on your payslip, the LITO discount has been distributed across your pay periods. A full-time employee receiving 26 fortnightly pays sees approximately $26.92 less tax per fortnight from the maximum LITO of $700.

This incremental application means most employees receive the correct net LITO benefit throughout the year. Discrepancies arise when an employee holds multiple jobs, changes income mid-year, or has other offsets. In those cases, any under-claimed LITO is reconciled as part of your annual tax return, and the ATO adjusts your refund or liability accordingly. Use our Tax Return Calculator to estimate whether you will receive a refund from LITO adjustments.

What Changed for LITO in FY2025-26?

The LITO thresholds and maximum amount of $700 remain unchanged for FY2025-26, but the Stage 3 tax cuts alter how LITO interacts with the income tax brackets.

The Stage 3 tax reform, effective from 1 July 2024, introduced three changes that affect LITO’s practical impact:

• The 19% marginal rate dropped to 16%, reducing raw tax on income between $18,201 and $45,000
• The 32.5% marginal rate dropped to 30%, reducing tax on income between $45,001 and $135,000
• The $120,000 threshold for the 37% rate increased to $135,000

These bracket changes raised the effective tax-free threshold from $21,884 (under the old 19% rate) to $22,575 (under the new 16% rate). The LITO itself did not change, but taxpayers in the $18,201–$45,000 band now owe less tax before LITO is applied, meaning the offset has a larger proportional impact. A worker earning $30,000 now pays $1,188 after LITO (down from $1,540 under the old 19% bracket).

The previous "Low and Middle Income Tax Offset" (LMITO), which provided up to $1,500 in additional relief, ended after FY2021-22 and has not been reinstated. LITO remains the sole broad-based low-income tax offset in the Australian tax system.

Related Resources

LITO intersects with multiple areas of Australian taxation and take-home pay calculations. The following resources provide detailed coverage of each related topic.

Frequently Asked Questions