Low Income Tax Offset (LITO) Australia 2025: Complete Guide

LITO - the Low Income Tax Offset - can save you up to $700 a year in tax. The thing is, most people don't really understand how it works or even know if they're getting it.

What is LITO?

LITO is basically a tax break for low and middle-income earners. The ATO automatically applies it when you lodge your tax return - you don't need to do anything special. It reduces your tax bill, but it won't create a refund if you don't owe tax in the first place.

How Much is LITO Worth?

Your Taxable Income	LITO Amount
$0 - $37,500	$700 (full amount)
$37,501 - $45,000	$700 - $325 (phases down)
$45,001 - $66,668	$325 - $0 (phases out)
$66,668+	$0 (not eligible)

Calculation Formula

• Up to $37,500: Full $700
• $37,501 to $45,000: $700 - (($taxable_income - $37,500) × 0.05)
• $45,001 to $66,668: $325 - (($taxable_income - $45,000) × 0.015)

Real Examples

Example 1: $30,000 Income

• Income Tax (before LITO): $2,242
• Medicare Levy: $236
• LITO: -$700
• Total Tax: $1,778
• Take Home: $28,222
• Effective Rate: 5.9%

Example 2: $42,000 Income

• Income Tax (before LITO): $4,518
• Medicare Levy: $476
• LITO: -$475 (reduced from $700)
• Total Tax: $4,519
• Take Home: $37,481
• Effective Rate: 10.8%

Example 3: $50,000 Income

• Income Tax (before LITO): $6,717
• Medicare Levy: $636
• LITO: -$250 (further reduced)
• Total Tax: $7,103
• Take Home: $42,897
• Effective Rate: 14.2%

Example 4: $70,000 Income

• Income Tax: $13,192
• Medicare Levy: $1,236
• LITO: $0 (income too high)
• Total Tax: $14,428
• Take Home: $55,572
• Effective Rate: 20.6%

When Does LITO Phase Out?

LITO has two phase-out ranges:

First Phase: $37,500 to $45,000

LITO reduces from $700 to $325 at a rate of 5 cents for every dollar over $37,500.

• At $37,500: $700
• At $40,000: $575
• At $42,500: $450
• At $45,000: $325

Second Phase: $45,000 to $66,668

LITO reduces from $325 to $0 at a rate of 1.5 cents for every dollar over $45,000.

• At $45,000: $325
• At $50,000: $250
• At $55,000: $175
• At $60,000: $100
• At $66,668: $0

Common LITO Misunderstandings

1. "I Don't Get LITO as a Refund"

Correct. LITO is non-refundable. It can only reduce your tax to $0, not create a refund. If your tax before LITO is $500 and your LITO is $700, you only benefit by $500.

2. "I Need to Apply for LITO"

Incorrect. LITO is automatically applied when you lodge your tax return. You don't need to claim it separately.

3. "LITO Increases My Tax-Free Threshold"

Technically yes. With LITO, you effectively don't pay tax until around $21,885 (when 19% tax on income above $18,200 exceeds the $700 LITO).

4. "Part-Time Workers Don't Get LITO"

Incorrect. Everyone earning under $66,668 gets LITO, regardless of part-time, full-time, or casual status.

LITO and Other Offsets

LITO works alongside other tax offsets you might be eligible for:

• LMITO: Low and Middle Income Tax Offset (ended 2021-22)
• SAPTO: Senior Australians and Pensioners Tax Offset
• Spouse super offset: If you contribute to your spouse's super
• Zone/overseas forces offset: For remote/military workers

You can receive multiple offsets - they're cumulative!

LITO for Specific Situations

Multiple Jobs

LITO is based on your total taxable income from all sources. If you have multiple jobs totalling $40,000, you get the same LITO as someone with one $40,000 job.

Part-Year Work

If you only worked part of the year, LITO is based on your actual annual income, not a pro-rated amount. Earning $30,000 in 6 months gives you the full $700 LITO.

Sole Traders/Business Owners

LITO applies to your taxable business income. If your business profit is $40,000, you're eligible for LITO.

Investment Income

LITO is based on total taxable income, including investment income. If you have $35,000 salary + $10,000 dividends = $45,000 total, you get $325 LITO.

Maximizing Your LITO Benefit

Tip 1: Use Salary Sacrifice

Salary sacrificing to super reduces your taxable income, potentially increasing your LITO:

• Income before sacrifice: $50,000 → LITO $250
• Sacrifice $5,000 to super: $45,000 taxable → LITO $325
• Extra LITO benefit: $75

Tip 2: Time Your Income

If you're close to a threshold, consider timing bonuses or extra work to optimize your LITO. For example, if you'll earn $45,500, deferring $1,000 to next year could increase your LITO by $8.

Tip 3: Claim All Deductions

Work-related deductions reduce your taxable income, potentially increasing LITO:

• Income: $48,000
• Deductions: -$3,000
• Taxable income: $45,000 → Gets you back to $325 LITO

FAQs

What is the LITO threshold?

LITO is available for taxable incomes up to $66,668. You get the full $700 if you earn up to $37,500.

Is LITO included in PAYG withholding?

Yes, if you claim the tax-free threshold on your TFN declaration, your employer's PAYG withholding accounts for LITO. You don't wait until tax time to benefit.

Can LITO create a tax refund?

Not directly. LITO is non-refundable and can only reduce your tax to zero. However, if your employer over-withheld tax, you can still get a refund - the LITO just reduces the tax you should have paid.

Will LITO change in the future?

LITO amounts have been stable since 2020-21. However, government policy can change - always check the ATO website or our calculator for the latest rates.

Do I get LITO if I'm a temporary resident?

Yes, as long as you're an Australian tax resident (even temporarily), you're eligible for LITO based on your taxable income.