Australian Tax Offsets 2025–26: LITO, SAPTO, MLS & More

Updated June 15, 2026 by Eduyush Team

Australian Tax Adviser Reference

Australian Tax Offsets 2025–26: Complete Reference

Income tests, phase-out ranges and maximum values for every key individual tax offset — financial year 1 July 2025 to 30 June 2026.

FY 2025–26 · All figures in AUD · Sources: ATO, Treasury Budget 2026, ITAA 1997

FY 2025–26 LITO · SAPTO · LISTO Medicare & MLS ATI = adjusted taxable income
Key Full offset available Reduces / phases out Nil — offset lost

Quick answer

A tax offset reduces the tax you pay dollar-for-dollar — unlike a deduction, which only reduces taxable income. This reference covers every key individual offset for 2025–26: the income-based LITO and beneficiary offsets, SAPTO for seniors, dependant offsets (invalid/carer, zone), the super offsets (spouse, LISTO, co-contribution), and the Medicare levy, MLS and PHI rebate. Most are non-refundable (they can only reduce tax to zero) — the PHI rebate is the one refundable exception. Many depend on rebate income or ATI, which add back salary-sacrificed super and fringe benefits.

Key takeaways

  • Offset ≠ deduction. A $1,000 offset saves $1,000 of tax; a $1,000 deduction only saves tax at your marginal rate.
  • Most offsets are non-refundable — they can't create a refund beyond tax payable. Only the PHI rebate is refundable.
  • Rebate income / ATI add back RESC, RFBA, rental and investment losses — so salary sacrifice can quietly cost you an offset.
  • Headline maximums: LITO $700, SAPTO single $2,230, invalid/carer $3,300, spouse super $540, LISTO $500, co-contribution $500.
  • MLS bites at $101,000 single (~$1,010/yr) — basic hospital cover often costs less, so check every client near the line.

AutomaticIncome-based offsets

Auto-calculated · non-refundable

Low Income Tax Offset (LITO)

No entry needed — the ATO calculates it automatically from taxable income.
Max $700 — unchanged 2025–26
Taxable income Offset amount Status
Up to $37,500 $700 — full Full
$37,501 – $45,000 $700 less 5c per $ over $37,500 Reducing
$45,001 – $66,666 $325 less 1.5c per $ over $45,000 Reducing
$66,667 and above Nil Gone
Note: LITO cannot reduce the Medicare levy. The effective tax-free threshold with full LITO is about $22,575. For minors, LITO only offsets tax on excepted (employment) income.

Auto-calculated · government recipients

Beneficiary Tax Offset

No entry needed — calculated automatically from income reported at Item 5.
Minimises tax on Centrelink payments
Taxable benefit amount Offset formula Status
Up to $6,000 No offset (below activation threshold) N/A
$6,001 – $45,000 15% × (benefit − $6,000) Standard
$45,001 and above 15% × (benefit − $6k) + 15% × (benefit − $45k) Enhanced
Example: benefit $17,000 → 15% × $11,000 = $1,650 offset
Note: Where both the beneficiary offset and SAPTO apply to the same person, only the higher of the two is granted — never both combined.

Age 67+ from 1 July 2023Seniors & Pensioners Tax Offset (SAPTO)

Item T1 · non-refundable · code at box N

SAPTO Unchanged 2025–26

The ATO calculates from rebate income = taxable income + RESC + RFBA + net investment losses + net rental losses + tax-free pensions and allowances.

Single (Code A)

Max $2,230

Rebate income Status
Below $34,919 Full $2,230
$34,919 – $52,759 Reducing
$52,759 and above Nil

Cut-out: below $52,759

Partnered — together (Code D)

Max $1,602 each

Rebate income (each) Status
Below $30,994 Full $1,602
$30,994 – $43,810 Reducing
$43,810 and above Nil

Combined cut-out: below $87,620

Apart due to illness (Code B/C)

Max $2,040 each

Rebate income (each) Status
Below $33,732 Full $2,040
$33,732 – $50,052 Reducing
$50,052 and above Nil

Combined cut-out: below $100,104

Reduction formula: SAPTO = maximum SAPTO − (rebate income − lower threshold) ÷ 8 Reduces at 12.5 cents for every $1 the rebate income exceeds the lower threshold.
Transfer rule: Unused SAPTO transfers automatically from the lower-income spouse at lodgement — no action needed. Full transfer occurs where the lower earner's taxable income is below $6,000. A single retiree receiving full SAPTO plus LITO pays zero tax on income up to about $33,886.

Dependant testsDependant offsets

Item T5 · non-refundable · enter at box B

Invalid & Invalid Carer Offset

Enter the calculated offset amount at Item T5 box B.
Max $3,300 per dependant — 2025–26
Income test 2025–26 limit If exceeded
Taxpayer ATI (dependent spouse claim) ≤ $117,194 No claim
Taxpayer + spouse ATI combined (other dependants) ≤ $117,194 No claim
Dependant ATI — reduction starts at $282 Reducing
Dependant ATI — fully gone at $13,482 Nil
Reduction = $3,300 − (dependant ATI − $282) ÷ 4 $1 reduction for every $4 of dependant ATI above $282
2026 increase: Max rises to $3,396 · dependant ATI limit → $13,866 · taxpayer/couple ATI limit → $120,007.

Item T4 · non-refundable · box R · 183+ days in a designated zone

Zone Tax Offset — dependant base amounts

Zone A: $338 + 50% of base · Zone B: $57 + 20% of base · Special Zone: $1,173 + 50% of base.
Dependant type Base ATI reduces from Nil at
Full-time student under 25, or oldest non-student under 21 $376 $286 $1,786
Other non-student child under 21 $282 $286 $1,410
Sole parent base amount $1,607 Shared pro-rata by custody %
Invalid & carer (feeds from T5) = T5 amount Already ATI-adjusted at T5
Base amount reduction = base − (dependant ATI − $282) ÷ 4
Planning tip: Teen dependants with part-time work may have deductions (uniforms, laundry) that pull their ATI below $286 — restoring a base amount that otherwise appears lost. Always check.

ContributionsSuperannuation offsets

Item T3 · non-refundable · enter contribution at box A

Spouse Superannuation Tax Offset

Spouse total super balance must be under $2 million on 30 June of the prior year — increased for 2025–26.
Max $540 = 18% of up to $3,000 in contributions
Spouse income (assessable + RFBA + RESC) Contribution ceiling Max offset
$37,000 or less $3,000 $540 full
$37,001 – $39,999 $3,000 minus every $ over $37,000 Reducing
$40,000 and above Nil Gone
2025–26 key change: Transfer balance cap lifted from $1.9m to $2m — spouse's TSB must be below $2m before the year starts. Can't claim for split contributions or a spouse aged 75+.

Paid automatically to the super fund · no return action

Low Income Super Tax Offset (LISTO)

The ATO calculates and pays it directly to the super fund after the return is lodged — nothing for the taxpayer to do.
Max $500 · min $10 · ATI must be $37,000 or less
ATI level LISTO amount Status
$37,000 or less 15% of concessional contributions (capped at $500) Eligible
$37,001 and above Nil Ineligible
Must have TFN registered with the super fund · at least 10% of income from employment or business · not available to temporary residents (except NZ citizens).
Plain English: LISTO refunds the 15% contributions tax paid inside super for low-income earners. It lands in the fund — not as a cash refund. Pair it with the co-contribution for maximum benefit.

Item A3 · government pays direct to super fund · thresholds updated 2025–26

Government Super Co-Contribution Thresholds updated

The ATO calculates and pays automatically. Complete Item A3 only where the taxpayer has partnership income or jointly-held investment income needing adjustment.
Max $500 = 50c per $1 contributed (up to $1,000 contribution)
Total income (assessable + RFBA + RESC − business deductions) Co-contribution Status
$47,488 or less Up to $500 Full
$47,489 – $62,488 $500 − [(income − $47,488) × 3.333%] Reducing
$62,488 and above Nil Gone
Must be under 71 · 10% eligible-income test (employment or business) · minimum ATO payment is $20.
Planning tip: A $1,000 after-tax contribution when income is at or below the lower threshold returns $500 from the government — a guaranteed 50% return on that portion. Stack with LISTO for low-income earners. One of the simplest, most overlooked strategies for clients earning under $47,488.

Levy · surcharge · rebateMedicare

Item M1 · auto-calculated · Budget 2026 update applied from 1 July 2025

Medicare Levy — low-income reduction Thresholds updated

Singles: no action required. Family/dependants: enter dependant count at M1 Label Y and complete spouse details.

Standard individuals

Taxable income Medicare levy
$28,011 or less updated Nil
$28,012 – $35,014 10% of amount over $28,011
$35,015 and above Full 2% of taxable income
Family nil threshold: $47,238 · per extra dependent child: +$4,338.

SAPTO recipients (seniors & pensioners)

Taxable income Medicare levy
$44,268 or less updated Nil
$44,269 – $55,335 10% of amount over $44,268
$55,336 and above Full 2% of taxable income
SAPTO family nil threshold: $61,623 · per extra dependent child: +$4,338.

Item M2 · compulsory · non-completion = ATO assumes full surcharge · updated 2025–26

Medicare Levy Surcharge (MLS) Thresholds updated

Income for MLS = taxable income + total reportable fringe benefits + RESC + total net investment losses. The family threshold increases by $1,500 for each dependent child after the first.
No surcharge
0%
Single $101,000 or less
Family $202,000 or less
Tier 1
1.0%
Single $101,001 – $118,000
Family $202,001 – $236,000
Tier 2
1.25%
Single $118,001 – $158,000
Family $236,001 – $316,000
Tier 3
1.5%
Single $158,001+
Family $316,001+
Planning trigger: At $101,001 the MLS costs about $1,010 per year. A compliant hospital cover policy commonly costs $700–$1,200 per year. Run the numbers for every client approaching $101,000 — cover often makes sense purely on the maths.

Refundable offset · PHI policy details section · tiers updated 2025–26

Private Health Insurance (PHI) Rebate Tiers updated

Claimed as a reduced premium OR as a refundable tax offset — or a mix. Based on income for surcharge purposes. Family threshold mirrors the MLS tiers above. This is the only refundable offset on this page.
Base tier
Single ≤ $101,000
Family ≤ $202,000
Under 65: 24.288%
65–69: 28.337%
70+: 32.385%
Tier 1
Single $101,001 – $118,000
Family $202,001 – $236,000
Under 65: 16.192%
65–69: 20.240%
70+: 24.288%
Tier 2
Single $118,001 – $158,000
Family $236,001 – $316,000
Under 65: 8.095%
65–69: 12.143%
70+: 16.192%
Tier 3 — no rebate
Single $158,001+
Family $316,001+
All ages: 0%
No rebate at any age.
Full premium applies.
Watch this: The PHI offset is refundable — unique among these. Clients who over-claim the rebate as reduced premiums during the year face a debt at lodgement. Advise them to notify their insurer if income is likely to be near a tier boundary.

Special categoriesMinors & income in arrears

Item A1 · penalty rates on eligible income only · under 18 at 30 June

Income earned by minors — penalty tax rates

Code A = excepted person (all income excepted) · Code M = has excepted income to report separately at Item A1.
$0
Nil tax
Eligible (investment) income of $416 or less
66%
on portion above $416
Eligible income $417 – $1,307
45%
on the entire eligible amount
Eligible income $1,308 and above
Excepted income (wages, own business earnings): taxed at normal adult marginal rates — LITO applies and can reduce tax to nil for low amounts.

Eligible income (interest, dividends, trust distributions, rent, gifts or inheritances): attracts the harsh penalty rates above, regardless of total earned.

Real-world example: A 16-year-old working part-time pays adult rates on their $8,000 wages. The same teenager earning $500 in interest on a bank account funded by grandparents' gifts pays 66% on the $84 above $416.

Item 24 Category 1 · offset auto-calculated by the ATO

Lump Sum E — back pay & income in arrears

Back pay that accrued more than 12 months before payment is reported as Lump Sum E. An offset ensures the taxpayer pays no more tax than if the income had arrived in the correct year.
Condition Requirement
What qualifies as Lump Sum E? Back pay that accrued more than 12 months before the payment date
Minimum size to trigger the offset Arrears must be 10% or more of taxable income (excluding the arrears)
STP Phase 2 employer ATO gets the year breakdown automatically — no action
STP Phase 1 or older employer Attach a schedule with a year-by-year breakdown
Also eligible: salary on return from suspension · Centrelink/DVA arrears · workers' compensation arrears · income-protection arrears where the super fund owns the policy.

Step 1

Calculate the tax attributable to the arrears: tax on total income this year minus tax excluding the arrears.

Step 2

Calculate notional tax on recent accrual years using actual tax rates from those specific years.

Step 3

Calculate notional tax on distant accrual years using the average of the Step 2 rates.

Tax offset

Step 1 minus (Step 2 + Step 3) = the tax offset applied.

Key adviser action: Always obtain a written letter from the employer showing which year each portion of the back pay accrued in. Without it, the ATO can't calculate the offset and the client overpays.

FAQFrequently asked questions

What is the difference between a tax offset and a tax deduction?

A tax deduction reduces your taxable income — so a $1,000 deduction saves you tax at your marginal rate. A tax offset directly reduces the tax payable — a $1,000 offset saves you $1,000 in tax regardless of your marginal rate. Offsets are therefore more valuable for lower-income taxpayers whose marginal rate is below 100%.

Who is eligible for the Low Income Tax Offset (LITO)?

LITO is available to Australian resident individuals whose taxable income is below $66,667. The full offset is $700 for taxable income up to $37,500. It reduces by 5 cents per dollar between $37,500 and $45,000, then by 1.5 cents per dollar between $45,000 and $66,667, where it reaches zero.

How does SAPTO work for couples?

SAPTO eligibility for couples is assessed first on combined rebate income. If the combined rebate income (taxable income plus RESC, RFBA, rental losses, investment losses and personal super deductions) exceeds $87,620, neither partner is eligible. If the combined test is passed, each partner's individual rebate income then determines their actual SAPTO amount. Unused SAPTO from the lower-income partner transfers automatically to the higher-income partner at lodgement.

What is rebate income and how is it different from taxable income?

Rebate income adds back several amounts that reduce taxable income: RESC (salary-sacrificed super), personal super contributions claimed as D12, adjusted RFBA (fringe benefits), total net investment losses, net rental property losses and tax-free government pensions. It is used for SAPTO, the zone offset dependant test, and the invalid carer offset. It is similar to ATI but specifically defined for these offset calculations.

Can a non-resident claim Australian tax offsets?

Most individual tax offsets are only available to Australian residents for tax purposes. Non-residents cannot claim LITO, SAPTO or most dependant-based offsets, and they are not entitled to the tax-free threshold. Temporary residents may have access to some offsets depending on their circumstances and any relevant tax treaty.

Disclaimer

General information only — not financial, tax or legal advice. Figures reflect 2025–26 thresholds as compiled here; verify all amounts at ato.gov.au or consult a registered tax agent before lodgement.

Australian Tax Offsets — FY 2025–26 · 1 July 2025 – 30 June 2026 · Sources: ATO, Treasury Budget 2026, ITAA 1997

ATI = adjusted taxable income · RESC = reportable employer super · RFBA = reportable fringe benefits · TSB = total super balance

For adviser reference — verify all figures against current ATO guidance before lodgement.

Leave a comment

Please note, comments must be approved before they are published

This site is protected by hCaptcha and the hCaptcha Privacy Policy and Terms of Service apply.

Back to Accounting

FAQs

Continue reading

More from this series

View all Accounting articles →
Occupation Tax Deductions Australia: By Profession Guide
TAXAUSTRALIA

Occupation Tax Deductions Australia: By Profession Guide

Australian Tax · Occupation-Specific Deductions · 2025–26 What Can My Occupation Claim? Tax Deductions by Job Every occupation...

Updated Jun 15, 2026 Quick read
Is It Deductible? The Australian Tax 3-Rule Test Guide
TAXAUSTRALIA

Is It Deductible? The Australian Tax 3-Rule Test Guide

Australian Tax · Deductions Decision Guide · 2025–26 Is It Deductible? The Three-Rule Test for Work Expenses A...

Updated Jun 15, 2026 Quick read
Australian Tax Substantiation Guide 2025–26: Records & Receipts
TAXAUSTRALIA

Australian Tax Substantiation Guide 2025–26: Records & Receipts

Australian Tax · Records & Substantiation · 2025–26 What Tax Records Do You Need? Substantiation Thresholds for Every...

Updated Jun 15, 2026 Quick read