A tax offset is sometimes referred to as a tax rebate, but let’s not get hung up on that. Instead, let’s look at what they actually are.
A tax offset reduces the amount of tax you owe. This is different to a tax refund (when you overpay on your taxes and are refunded that extra bit paid by the ATO) and it’s also different from a tax deduction (which lowers your taxable income).
Instead, a tax offset reduces the amount of tax you pay, your tax payable, on your taxable income.
Each and every financial year, you are required to pay tax to the ATO, and the rate at which you pay tax is based on the amount of money you earn within that financial year. However, it might be possible to reduce the amount of tax you owe through offsets you’re eligible for.
Who gets a tax offset?
Various people can receive tax offsets, depending on their circumstances. Let’s take a peak at a few examples.
People who earn $66,667 or under are categorised as low income earners and therefore your tax payable can be reduced by up to $700 thanks to the Low Income Tax Offset. The government introduced this policy as a way to help lower income workers pay less tax, ensuring that they have more left over to cover living costs.
Tax offsets are automatically calculated by the ATO when you lodge your tax return, if you are eligible for them. If you’re a Hnry user, there’s nothing you need to do in the Hnry system to make sure you get a tax offset – if you’re eligible, it’s automatically applied!
Tax offsets for sole traders
Speaking of which, depending on your circumstances, there are a few tax offsets you may be eligible for.
Small business income tax offset
First and foremost – the small business income tax offset (also known as the unincorporated small business tax discount) can reduce your tax bill by up to $1,000 a year, if you’re eligible.
It’s available for sole traders with businesses earning a net income of less than $5 million. Remember, if you’re eligible, it’ll automatically be applied by the ATO once your tax return has been processed.
Low income tax offset (LITO)
The LITO is available for all low-income earners, not just sole traders! To be eligible for the full $700 offset, you’ll need to have earned less than $37,500 across the financial year (including from your PAYG salary, if applicable).
If you earn over this threshold, the offset amount you’re eligible for will gradually reduce until you hit the upper threshold of $66,667. At this point, you’re officially considered a middle-income earner (🎉).
Seniors and pensioners tax offset (SAPTO)
SAPTO is for all business owners under the age of five, who earn more than $1 million annually.
Just kidding. It’s a tax offset for seniors and pensioners. You’ll need to be eligible for an Australian Government pension or allowance and meet certain income limits for you and your spouse in order to qualify.
Private health insurance offset
If you have private health cover, the government may contribute towards paying your private health insurance. You may access this as a reduced premium throughout the year, or a refundable offset when you lodge your tax return.
Beneficiary tax offset
The beneficiary tax offset is available to taxpayers who receive certain Centrelink allowances and payments and Commonwealth education allowances. You’ll need to meet particular income criteria in order to be eligible.
Foreign income tax offset (FITO)
If you pay tax in both Australia and another country, you may be eligible for a FITO. It’s designed to stop you from paying tax twice on the same income (thank goodness).
Zone and overseas forces tax offsets
The zone tax offset, and the overseas forces tax offset, are designed to provide some tax relief for those who live and work in remote or isolated areas of Australia, or who serve in the Australian Defence Force overseas.
Eligible working locations are dictated by the ATO, so if this sounds like you, it’s worth checking their website to see if either offset applies.
Hnry automates your taxes (and tax offsets)
Does all this sound scary and intimidating? Not a worry, just knock on our door and we’ll do the hard yards for you. Helping you with taxes is literally our higher purpose in life.
Join Hnry today!
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