Tax offset
A reduction applied directly to your tax bill, worth the same dollar amount regardless of your income.
An offset cuts the tax you owe rather than the income you are taxed on. A $700 offset removes $700 of tax, whether you earn $30,000 or $300,000.
The most common is the Low Income Tax Offset, which applies automatically to lower incomes and phases out as income rises. Others include the private health insurance rebate, the seniors and pensioners offset, and offsets for super contributions made on behalf of a spouse.
Most offsets are non-refundable, meaning they can reduce your tax to zero but no further. If your offset exceeds your tax liability, the excess is generally lost rather than paid to you as a refund.
Offset versus deduction on the same $700
A $700 offset removes exactly $700 of tax. A $700 deduction removes $700 of taxable income, saving $210 on a 30% marginal rate. The offset is worth more than three times as much.
The bit people get wrong
Because most offsets are non-refundable, they are worth nothing to someone who already pays no tax. Low income earners sometimes expect a cash payment from an offset and receive nothing, which is the system working as designed.
Common questions
Do I need to apply for the Low Income Tax Offset?
No. The ATO applies it automatically when you lodge your return, based on your taxable income. There is no separate claim to make.
Are franking credits an offset?
They function as one, but unusually they are refundable. If your franking credits exceed the tax you owe, the excess is paid to you in cash rather than being lost.
Which offsets am I most likely to receive?
For most wage earners it is the Low Income Tax Offset and the private health insurance rebate. Both are applied automatically from information the ATO already holds, so neither requires a separate claim at lodgment.
Run your own numbers