Individual taxation offsets and rebates

Over the course of your life, you’re likely to receive income (cash flow) from various sources. These can include employment, self-employment, business interests and investments.

Importantly, the income you receive will often be assessable for income tax purposes. However, depending on your situation, there will be instances where the tax payable may be reduced.

Below we provide a brief overview of individual taxation, and several tax offsets (or rebates).

Income and taxation

Overview

For tax purposes, your taxable income is your assessable income reduced by any allowable deductions. Of note:

• Your assessable income can include inflows like wages, interest, rent, dividends, trust distributions, capital gains, and business income.
• Your allowable deductions can include expenses or outgoings incurred by you in earning your assessable income like work-related expenses, investment property expenses, borrowing costs for investment, and relevant business expenses.

Once your taxable income has been determined, by applying the relevant tax rates to your taxable income, you can calculate your tax payable on it. Importantly, your tax payable can be adjusted by additional levies and any debt owed to the Government, as well as any tax credits and tax offsets you are entitled to claim. When your income tax return for that financial year is lodged and assessed, you may receive a refund or have an amount owing.

Here is a brief but simplistic overview of what has been explained above:

1. Assessable income – allowable deductions = Taxable income
2. Taxable income x relevant tax rates = Tax payable on taxable income
3. Tax payable – non-refundable tax offsets = Net tax payable on taxable income
4. Net tax payable + HELP debt repayments + Medicare levy and Medicare levy surcharge – tax credits and refundable tax offsets = Refund or amount owing

Tax offsets

Overview

As noted above, a tax offset reduces your tax payable after it’s been calculated based on your taxable income.

With this in mind, it must be noted that, generally, a tax offset can reduce your tax payable to zero, however on its own, it can't provide you with a refund unless it’s a refundable tax offset.

Below is a brief description of several tax offsets you may be entitled to claim.

Seniors and pensioners tax offset (SAPTO)

According to recent ATO data, for the 2017-18 financial year, 613,297 Australians were entitled to the non-refundable seniors and pensioners tax offset (SAPTO)—the average and median SAPTO was $1,183 and $1,172, respectively.

In general, eligibility for SAPTO centres on you meeting certain criteria:

• You have reached Service/Age Pension age, and meet certain eligibility requirements for a Government pension or similar; or
• You are receiving certain taxable Government payments (e.g. Parenting Payment – Single).

In addition to above, the amount of SAPTO that you may be entitled to depends on your rebate income and your marital status. Please see the below table for further details.

The tax offset reduces by $0.125 per $1 of rebate income above the shade-out threshold. Rebate income is defined as taxable income (disregarding any assessable First Home Super Saver released amount) plus adjusted fringe benefits total, reportable super contributions, and total net investment losses. Please note: In some cases, if you and your spouse are both eligible for SAPTO, you may be able to transfer your spouse's unused tax offset to you.

Low-income tax offset (LITO)

According to recent ATO data, for the 2017-18 financial year, 6,747,465 Australians were entitled to the non-refundable low-income tax offset (LITO)—the average and median tax offset was $310 and $353, respectively.

The amount of LITO that you may be entitled to depends on your taxable income. Please see the below table for further details.

The tax offset reduces by $0.05 per $1 of taxable income between $37,500 and $45,000, and a further $0.015 per $1 of taxable income between $45,000 and $66,667.

Low and middle-income tax offset (LMITO)

The low and middle-income tax offset (LMITO) is a non-refundable tax offset. The amount of LMITO that you may be entitled to depends on your taxable income. Please see the below table for further details.

Please note: Entitlement to LMITO is in addition to LITO. It must be noted that LMITO will end on 30 June 2021.

Spouse contribution tax offset

If you make a non-concessional contribution to your spouse’s super, you may be eligible for the non-refundable spouse contribution tax offset. 

Please note: You can only contribute for a spouse aged 67–74 if they have satisfied the work test or are eligible for the work text exemption.

In general, eligibility for the spouse contribution tax offset centres on your spouse meeting certain criteria:

• Your spouse must be under 75 years old when the contribution is made.
• Your spouse must not have excess non-concessional contributions for the financial year.
• Your spouse must not have a total super balance that equals or exceeds the general transfer balance cap as at 30 June of the prior financial year.

In addition to above, the amount of spouse contribution tax offset that you may be entitled to depends on the amount of your contribution and your spouse’s income. Please see the below table for further details.

The tax offset is 18% of the lesser of: $3,000 reduced by $1 per $1 of your spouse’s income above $37,000; or, your contribution. Your spouse’s income is their assessable income plus reportable fringe benefits and reportable employer super contributions.

Private health insurance rebate

According to recent ATO data, for the 2017-18 financial year, 274,844 Australians paid the Medicare levy surcharge—the average and median levy charge was $1,290 and $1,027, respectively.

The Medicare levy surcharge is charged where private hospital cover has not been obtained by:

• Individuals who have income for surcharge purposes of more than $90,000; or
• Couples who have income for surcharge purposes of more than $180,000 combined.

Income for surcharge purposes includes taxable income (excludes First Home Super Saver released amounts), reportable fringe benefits total, total net investment losses, reportable super contributions, exempt foreign employment income (and certain trust income).

The private health insurance rebate—a refundable tax offset—is an amount the Government contributes towards the cost of your private health insurance premiums. The tax rebate can be claimed as either a private health insurance premium reduction or as a tax offset when lodging your income tax return.

The amount of private health insurance rebate that you may be entitled to depends on your age, household status, and income for surcharge purposes. Please see the below table for further details.

For families with children, the income thresholds are increased by $1,500 for each dependent child after the first.

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