How much LITO you get in 2026-27
The offset runs on three bands of taxable income. Up to $37,500 you get the full $700. Between $37,500 and $45,000 it drops by 5 cents for every dollar, which brings it to $325 at $45,000. From there it drops by 1.5 cents per dollar until it reaches nil at $66,667. Above that income there is no entitlement at all.
The table below is generated by the same function the calculators on this site use, so the shape of the taper is the real one, not a rounded illustration. Tax figures are income tax only, before the Medicare levy, for a resident claiming the tax-free threshold.
| Taxable income | Tax before LITO | LITO | Tax after LITO |
|---|---|---|---|
| $30,000 | $1,770 | $700 | $1,070 |
| $37,500 | $2,895 | $700 | $2,195 |
| $40,000 | $3,270 | $575 | $2,695 |
| $45,000 | $4,020 | $325 | $3,695 |
| $50,000 | $5,520 | $250 | $5,270 |
| $55,000 | $7,020 | $175 | $6,845 |
| $60,000 | $8,520 | $100 | $8,420 |
| $70,000 | $11,520 | $0 | $11,520 |
Read the middle two columns together and the hidden cost of the taper shows up. Between $37,500 and $45,000 you lose 5 cents of offset for every extra dollar earned, on top of the 15 cents of tax on that dollar, so the real marginal rate in that band is 20 cents in the dollar before the Medicare levy. The published 2026-27 tax brackets do not show that.
An offset is not a deduction
A deduction comes off your income before tax is worked out. A dollar of deduction saves you your marginal rate, so 30 cents at a 30% marginal rate. An offset comes off the tax itself after the brackets have been applied, so a dollar of offset saves you a full dollar. LITO is an offset. The $700 maximum is $700 of tax, not $700 of income.
That distinction also explains why LITO never changes your taxable income, your HELP repayment income or any of the income tests that run off those figures. It sits at the end of the calculation and touches one number: tax payable.
Non-refundable, and nothing to claim
LITO is non-refundable. It can reduce tax payable to zero and no further. Someone with $20,000 of taxable income has almost no tax to offset, so most of their $700 entitlement goes unused and is not paid out as cash. The ATO applies the offset itself when it assesses your return, which is why you will never find a LITO field in myTax. It appears on the notice of assessment as a non-refundable tax offset.
A refund is a separate thing. LITO is one of the reasons a refund can be larger than expected, because employer withholding under the tax tables already builds in a share of the offset across the year, and the final assessment settles the difference. The tax refund calculator runs that reconciliation on your own numbers.
Why low-income effective rates beat the bracket table
Take a resident on $40,000 in 2026-27. The brackets alone produce $3,270 of income tax. LITO takes $575 off that, leaving $2,695. Add the Medicare levy of $800 and the total is $3,495, an effective rate of 8.7%. Without the offset the same person would sit at 10.2%. The bracket table says 15% on every dollar above $18,200; the actual average burden at this income is well under half that once the tax-free threshold and LITO are counted.
This is the gap between marginal and effective rates that trips people up when they compare a payslip against the published scale. Run your own salary through the PAYG calculator to see the offset applied, and check the glossary for the related terms.
Common questions
Do I have to claim the low income tax offset?
Can LITO give me a refund on its own?
Does LITO reduce the Medicare levy?
Is LITO the same as the low and middle income tax offset?
Sources
- ATO: Low income tax offset (the $700 maximum, the 5c and 1.5c taper rates, the $66,667 cut-out, and confirmation that the offset is applied at assessment and cannot be refunded)
- ATO: Personal income tax, new tax cuts for every Australian taxpayer (the 15% rate applying from 1 July 2026, used in every calculation above)
Narelle Hartigan is a CPA-qualified tax accountant with over a decade of experience in Australian personal taxation and payroll. She founded PAYG Calculator Australia to make tax withholding easy for every Australian worker to understand.