What is the low income tax offset and can working holiday makers claim it?

What is the Low Income Tax Offset?

LITO is a tax-reduction concession built into Australian tax law:

• Reduces the tax payable on a return (not your taxable income)
• Maximum benefit: $700 per year
• Maximum applies to taxable income up to $37,500
• Reduces gradually for income $37,501 to $66,667
• Phases out completely at $66,667 and above
• Non-refundable (reduces tax to zero, no further refund)

The offset is automatic on standard resident tax returns. For working holiday makers, the position is more nuanced.

How much LITO is available at different income levels?

For the 2025-26 tax year:

• Income up to $37,500: full $700 offset
• Income $37,501 - $45,000: gradually reducing
• Income $45,001 - $66,667: further reduction
• Income above $66,667: no LITO

The exact reduction calculation involves complex thresholds. When we prepare your return, we apply the correct amount based on your specific situation.

Can working holiday makers claim LITO?

The position depends on:

• Your specific income level
• Your residency status for the financial year
• How the working holiday maker rules interact with the offset
• Whether you had any non-WHM income

This is one of the more complex aspects of working holiday maker tax. Some working holiday makers can claim partial LITO, some cannot. The rules have changed multiple times and continue to evolve.

When we prepare your tax return, we assess LITO eligibility based on your specific circumstances and apply whatever you are entitled to. Lodging without a tax agent often results in eligible offsets being missed.

What is the difference between an offset and a deduction?

This distinction matters and is often confused:

Deduction: reduces your taxable income

• Earn $30,000, claim $1,000 deduction → taxed as if you earned $29,000
• Reduces tax by your marginal rate × deduction (e.g., $150 saved at 15%)

Offset: reduces the tax you owe

• Owe $4,500 in tax, $700 offset → pay $3,800
• Reduces tax dollar-for-dollar (the full $700)

Offsets are generally more valuable than deductions of the same dollar amount. A $700 LITO reduces your tax by $700, whereas a $700 deduction only saves $105 (at 15% rate).

Can LITO be combined with other offsets?

Yes. Multiple offsets can apply to one return:

• LITO: based on total income
• Small business tax offset: for ABN income
• Medicare Levy exemption: for non-Medicare-eligible workers

Each is calculated separately and applied to reduce total tax payable. We apply every relevant offset when preparing your return.

What happens if LITO would reduce your tax below zero?

LITO is non-refundable:

• If your tax owed is $500 and LITO is $700, your tax becomes $0
• The remaining $200 of LITO is NOT refunded to you
• Your overall refund comes from PAYG tax withheld throughout the year

The refund you receive is calculated as: total tax withheld minus your final tax liability (after offsets). LITO can help reduce the final liability, increasing your refund.

How do we apply LITO when lodging your return?

Our process:

1. We calculate your total taxable income (wages + ABN income + other)
2. We assess your eligibility for LITO under current rules
3. We calculate the applicable LITO amount
4. We apply it alongside other eligible offsets
5. We show you the impact on your refund before lodging

Get in touch with our team if you want to know whether you qualify for LITO before lodging. We do this calculation for working holiday makers every week.