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  • Writer's pictureAmanda Amey

Tax Offset Guide

Updated: May 19, 2023

What is a Tax Offset?

A tax offset, in more simpler terms, is a tax rebate. Tax offsets help reduce the tax that you have to pay. Whilst it will often be automatically calculated by the ATO, it's important to understand your eligibility to ensure that you are getting what you deserve as not all offsets are automatically applied. Sometimes a tax offset is only applied, based on certain eligibility criteria being submitted.

Suppose the tax offset you are qualified for requires you to make a claim actively. In that case, you need to lodge specific paperwork on or before the end of the financial year. You can also make a note on your tax return regarding the claim. Whilst the The Low and Low to Middle Income Tax Offset, will be automatically applied by the ATO, you would want to be able to check that you are not missing any other tax offsets.

What is The difference between a Tax Offset and a Tax deduction?

Whilst they can both potentially save you money on tax each year, a tax offset reduces the amount of tax that you pay, whereas a tax deduction reduces the income on which you calculate the tax that you pay.


If you owe $5,000 in tax, but you have a $1,080 tax offset, you will only need to pay the difference of $3,920 whereas if you earned $40,000 this year, and you had a tax deduction of $4,000, you would only calculate the tax on the difference, so you would only pay tax on $36,000.

Common Australian Tax Offsets include....

Low and Middle income Tax Offset (LMITO)

LMITO also includes Low Income Tax Offset (LITO). Certain taxpayers can qualify for both LITO and LMITO since they are generally based on income. If you are below a certain threshold, you could enjoy a rebate of up to $1,080 (LMITO). Your taxable income should be between $48,000 and $90,000. The ATO will calculate your tax cut for you as you lodge your return. That means you can immediately benefit from the offset if you’re qualified to either or both.

Private Hospital insurance

If you have had private hospital insurance cover, you could be eligible for this tax offset. It is not good enough to just take it out towards the end of the financial year though, as you are only eligible for this offset for the days that you have actually held private hospital cover. The appropriate level of cover is important in establishing your eligibility though, so basic extra's cover is not usually enough.

Seniors and Pensioners If you receive a government pension from the Department of Veterans Affairs or Centrelink or meet the age requirement for the aged pension, you may be eligible for this tax offset. Better known as the Seniors and Pensioners Tax Offset (SAPTO), this rebate can reduce your tax by up to $2,230 if you’re single. If you’re married, you and your partner may be qualified to claim up to $1,602. Couples separated by illness may be able to claim up to $2,040.

Tax Offsets Linked to Super Incomes Applicable for :

- For people who receive income from an Australian super income stream or

- For people who make contributions to their spouse’s super

If you qualify for the first type mentioned above, you can get a 15% deduction off of your super stream income. (Some people get a 10% deduction based on their untaxed income with a maximum offset of $10,000). If you contribute on behalf of your spouse, you can get a tax offset of up to $540. The offset amount will be based on various factors, including the age, the total assessable income, and the reportable fringe benefits of your spouse.

What is a Zone Offset?

Are you living and working in a remote area in Australia? You may be eligible for the Zone offset. A zone offset is a concessional tax offset available to individuals against their tax liability, in recognition of the isolation, extreme climate and high costs of living associated with living in a particular zone. The Zone offset claims are made up of a fixed amount, plus a percentage of the dependant offset base amount. There are 4 zones to consider and your zone will determine the zone offset amount that you are eligible for.

To claim the zone tax offset your usual place of residence needs to be both:

  • a remote or isolated area (known as a zone)

  • your residence for 183 days or more during the income year. (considerations apply if you were unable to claim the year before because you hadn't reached 183 days yet)

Offsets can be a minefield, so if you need a little extra help and want us to prepare and lodge your tax return for peace of mind, book a tax appointment today.

This articles intention is to inform rather than advise and is based on legislation at the time. Each Taxpayer’s circumstances vary so we strongly recommend that you discuss this information with your Tax Agent, Accountant or Bas Agent before implementation. If you take, or do not take action as a result of reading this article, we accept no responsibility for any financial loss incurred. This is general advice only.


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