Tax Offsets and Rebates Australia 2025–26: How to Reduce Your Tax Bill This Lodgement Season
With tax return season in full swing, millions of Australians are lodging their 2025–26 returns right now. One of the most effective — and most misunderstood — ways to reduce your tax bill is through tax offsets and rebates. Unlike deductions, which reduce your taxable income, offsets are applied directly against the tax you owe, making them dollar-for-dollar more powerful.
This guide covers every major offset available for 2025–26, who qualifies, how much you can claim, and the practical steps to make sure you don’t leave money on the table.
What Is a Tax Offset?
A tax offset (sometimes called a tax rebate) reduces the amount of income tax you pay after your tax has been calculated. If your offset exceeds your tax liability, most offsets are non-refundable — meaning the unused portion is not paid out as cash. However, some offsets (like the private health insurance rebate) are refundable, meaning any excess can be returned to you.
Tax offsets are separate from deductions. Deductions reduce your taxable income; offsets reduce the tax calculated on that income.
Low Income Tax Offset (LITO): Up to $700
The Low Income Tax Offset (LITO) is the most widely claimed offset in Australia, available to resident taxpayers with taxable income below $66,667.
2025–26 LITO Rates
| Taxable Income | LITO Amount |
|---|---|
| $37,500 or less | $700 (maximum) |
| $37,501 – $45,000 | $700 less 5 cents per $1 over $37,500 |
| $45,001 – $66,667 | $325 less 1.5 cents per $1 over $45,000 |
| Above $66,667 | Nil |
Key Points
- Automatic: The ATO calculates LITO automatically from your lodged return — you don’t need to claim it separately.
- Non-refundable: LITO can reduce your tax to zero, but any unused amount is not paid out as cash.
- Taxable income matters: LITO is based on your taxable income (after deductions), so maximising legitimate deductions can increase your LITO entitlement.
What Happened to LMITO?
Many Australians still ask about the Low and Middle Income Tax Offset (LMITO). The short answer: it ended after 2021–22 and is not available for your 2025–26 return.
LMITO was a temporary measure that ran from 2018–19 to 2021–22. It was not replaced by a new offset. While individual tax rates have changed in recent years, those are adjustments to the tax brackets themselves — not a new rebate. Do not attempt to claim LMITO on your 2025–26 return.
Seniors and Pensioners Tax Offset (SAPTO): Up to $2,230
The Seniors and Pensioners Tax Offset (SAPTO) is a generous offset for eligible older Australians, potentially eliminating tax entirely for those on modest incomes.
Who Qualifies?
You may be eligible if you:
- Receive an eligible Australian Government pension or allowance (Centrelink or DVA), or
- Met the age, residence, or veteran criteria but didn’t receive a payment due to an income/assets test or didn’t make a claim
- Were at least 67 years old on 30 June 2026 (for age pension purposes), or at least 60 for eligible veterans
2025–26 SAPTO Amounts
| Family Status | Maximum Offset | Shade-Out Starts | Cut-Out Point |
|---|---|---|---|
| Single | $2,230 | $34,919 | $52,759 |
| Couple (each) | $1,602 | $30,994 | $43,810 |
| Illness-separated (each) | $2,040 | $33,732 | $50,052 |
SAPTO reduces by 12.5 cents for each $1 of rebate income above the shade-out threshold.
Important: Use Rebate Income, Not Taxable Income
SAPTO eligibility is tested against rebate income, which is broader than taxable income. It includes:
- Taxable income
- Reportable employer super contributions
- Total net investment losses
- Relevant fringe benefits
Spouse Transfer
If one eligible spouse cannot use all of their SAPTO (because their tax is too low), the unused portion can transfer to the other eligible spouse. Both spouses must lodge their returns with accurate details for the ATO to calculate this automatically.
Private Health Insurance Rebate: A Refundable Offset
The private health insurance rebate is unique because it is refundable — if you’re entitled to more rebate than you received through reduced premiums, the difference comes back to you as a tax refund.
Who Is Eligible?
- You hold a complying private health insurance policy with an Australian-registered insurer
- You are eligible for Medicare
- Your income for surcharge purposes is below the Tier 3 threshold
2025–26 Income Tiers
| Tier | Single Income | Family Income |
|---|---|---|
| Base | $101,000 or less | $202,000 or less |
| Tier 1 | $101,001 – $118,000 | $202,001 – $236,000 |
| Tier 2 | $118,001 – $158,000 | $236,001 – $316,000 |
| Tier 3 (no rebate) | $158,001+ | $316,001+ |
Rebate Percentages (1 July 2025 – 31 March 2026)
| Age of Oldest Person Covered | Base Tier | Tier 1 | Tier 2 |
|---|---|---|---|
| Under 65 | 24.288% | 16.192% | 8.095% |
| 65–69 | 28.337% | 20.240% | 12.143% |
| 70+ | 32.385% | 24.288% | 16.192% |
Note: Rebate percentages are adjusted on 1 April each year, so the rates above apply from July 2025 to March 2026. A different rate applies from April to June 2026. Use your insurer’s statement and the ATO’s pre-fill data rather than applying one rate to the full year.
Medicare Levy Surcharge Warning
If you earn above the Base Tier threshold and don’t hold appropriate private patient hospital cover, you may face the Medicare Levy Surcharge (MLS) of 1%–1.5% on top of the standard 2% Medicare levy. Extras-only cover (dental, optical) does not qualify — you need hospital cover with an excess no higher than $750 (single) or $1,500 (family).
Small Business Income Tax Offset: Up to $1,000
If you’re a sole trader or receive business income through a partnership or trust, you may be entitled to the Small Business Income Tax Offset (also called the unincorporated small business tax discount).
Key Details for 2025–26
- Rate: 16% of the tax attributable to your eligible net small-business income
- Cap: $1,000 per individual per year
- Eligibility: Your business must have aggregated turnover below $5 million
- Excluded income: Salary and wages, net capital gains, and personal services income (unless from a personal services business) do not count
The ATO calculates this offset automatically from the business income figures you report. Keep records of your turnover, eligible income, and deductions to support your claim.
Family Tax Benefit: Not a Tax Offset
It’s worth clarifying: Family Tax Benefit (FTB) Parts A and B are Services Australia payments, not income tax offsets. They are not applied against your tax bill. However, lodging your tax return is essential for Services Australia to balance your FTB payments against your actual family income.
FTB uses adjusted taxable income (ATI), which is broader than taxable income and includes reportable fringe benefits, net investment losses, and reportable super contributions. A tax deduction that reduces your taxable income may not reduce your ATI by the same amount.
What’s Coming — But Not Yet Available in 2025–26
Several measures have been announced but do not apply to your 2025–26 return:
- Individual rate reduction (16% → 15%): Starts 2026–27
- Standard deduction of up to $1,000: From 1 July 2026
- Working Australians Tax Offset: Scheduled for 2027–28
Do not attempt to claim these on your current return.
Practical Checklist: Maximising Your Offsets in 2025–26
- ✅ Confirm your Australian tax residency status (required for LITO)
- ✅ Maximise legitimate deductions to lower your taxable income — this can increase your LITO
- ✅ Do not claim LMITO — it ended in 2021–22
- ✅ For SAPTO: calculate your rebate income (not just taxable income) and check eligibility
- ✅ Report accurate spouse details so the ATO can calculate any SAPTO transfer
- ✅ Compare your private health insurance pre-fill data against your insurer’s statement
- ✅ Check whether you held appropriate hospital cover for the full year (MLS exposure)
- ✅ For the small business offset: verify your aggregated turnover and eligible net business income
- ✅ Review your Notice of Assessment once issued — check that LITO, SAPTO, and other offsets appear correctly
- ✅ Don’t claim measures that start after 30 June 2026
Sources
- ATO — Low Income Tax Offset
- ATO — Seniors and Pensioners Tax Offset
- ATO — Private Health Insurance Rebate
- ATO — Medicare Levy Surcharge
- ATO — Small Business Income Tax Offset
- Services Australia — Family Tax Benefit
Get Expert Help from TaxServe Australia
Tax offsets can make a significant difference to your refund — but only if you claim them correctly. At TaxServe Australia, our experienced tax professionals help individuals, families, and small business owners navigate every offset, deduction, and rebate available to them.
Whether you’re unsure about your SAPTO eligibility, need help reconciling your private health insurance rebate, or want to ensure your small business offset is maximised, we’re here to help.
Contact TaxServe Australia today to book a consultation and make sure you’re getting every dollar you’re entitled to this tax season.
This article is general information only and does not constitute personal tax advice. Please consult a registered tax agent for advice specific to your circumstances.