Low Income Tax Offset (LITO) 2026-27: $700 Calculator & Thresholds

LITO Thresholds and Formula

LITO depends only on your taxable income for the year. These are the ATO’s thresholds, unchanged for 2026-27:

The offset comes off the tax worked out from the tax brackets, dollar for dollar. That makes it worth more than a deduction of the same size: a $700 deduction at the 15% rate would save $105, while the offset saves the full $700 (as long as you have that much tax to offset). Low earners also get a super offset: see the LISTO calculator.

LITO by Income: How Much Tax It Saves

Resident, 2026-27 rates. “Tax after LITO” is income tax only; the 2% Medicare levy is separate and isn’t reduced by LITO.

Where “LITO used” is below the offset, the tax before LITO is smaller than the offset and the rest is lost: LITO can’t be refunded.

For the full picture at a single salary, including the Medicare levy, see Tax on $50,000 in Australia, where LITO is still partly in play, and Tax on $75,000 in Australia, above the point where it has fully phased out.

LITO and the Tax-Free Threshold: No Tax Up to $22,866

The tax-free threshold is $18,200. Above it, tax starts at 15%, and the full $700 offset cancels that tax until it reaches $700:

1. $700 ÷ 15% = $4,666.67 of income above $18,200.
2. $18,200 + that amount = $22,866.67.
3. At $22,866 the tax is $699.90, fully covered by LITO. At $22,867 it is $700.05, a few cents more than the offset.

So the effective tax-free threshold is $22,866 in 2026-27. You’ll still see $22,575 quoted: that was the 2025-26 figure, when the rate was 16%. When the rate drops to 14% on 1 July 2027 it rises to $23,200.

Is LITO in Your Pay? Only Partly

Your employer doesn’t show LITO on your payslip. The ATO’s withholding formulas build in part of it, which is why, with the tax-free threshold claimed, no tax is withheld until you earn more than $363 a week ($726 a fortnight), about $18,876 a year. That is above $18,200 but well below $22,866, so the rest of the offset reaches you when you lodge: as part of your refund, or as a smaller bill.

To see how your withholding compares with the tax you’ll actually owe, including LITO, use the tax withheld calculator.

How the Phase-Out Raises Your Marginal Rate

Because LITO shrinks as you earn more, each extra dollar between $37,500 and $66,667 costs more tax than the bracket rate alone. Between $37,500 and $45,000 you pay 15% tax plus 5c of lost offset, so on $40,000 the next $1,000 costs $220 including the Medicare levy. Above $45,000 it is 30% plus 1.5c. It’s still always worth earning more: you keep most of every extra dollar. More in marginal tax rate vs average rate.

Who Gets LITO

The ATO says you may be eligible if you earn up to $66,667 and you:

• are an Australian resident for tax purposes;
• pay tax on your taxable income; and
• have taxable income below the thresholds above.

There is no age, job-type or asset test. Employees, sole traders and retirees with taxable income all qualify on the same basis. Foreign residents don’t get LITO or the tax-free threshold (see non-resident tax), and working holiday makers are taxed under their own rates (see working holiday tax).

Seniors and pensioners can get the separate seniors and pensioners tax offset (SAPTO), up to $2,230 for a single person, on top of LITO.

What Changed for LITO in 2026-27

The offset itself did not change: still $700, still the same $37,500, $45,000 and $66,667 thresholds. What changed is the tax it offsets. The second tax rate fell from 16% to 15% on 1 July 2026, so everyone below $66,667 pays less tax before LITO is applied, and the no-tax point moved from $22,575 to $22,866. The old low and middle income tax offset (LMITO) ended after 2021-22.

LITO FAQ