Tax offsets (sometimes referred to as rebates) directly reduce the amount of tax payable on your taxable income.
In general, offsets can reduce your tax payable to zero, but on their own they can't get you a refund.
In this article we will cover followingtax offsets and rebates deduction parts:
- Health insurance rebate
- If you receive Government benefits
- If you maintained an invalid or invalid carer
- Income tests
- Low-income earners tax offsets
- Medical expenses tax offsets
- Senior Australians and pensioners tax offsets
- Super related tax offsets
- Zones and overseas forces offsets
1. Health insurance rebate
Your entitlement to a private health insurance rebate or tax offset depends on your income level. If you have private health insurance:
- the amount of your entitle is reduced if your income is more than a certain amount
- your private health insurance rebate is calculated by ATO when you lodge your tax return.
You can claim your private health insurance rebate as a:
- premium reduction, which lowers the policy price charged by your insurer
- refundable tax offset through your tax return.
This may result in you receiving a tax offset or a liability, depending on:
- how you claim your rebate
- the level of rebate you have claimed for your policy
- your income for Medicare levy surcharge purposes.
2. If you receive Government benefits
- only receive any of the qualifying benefits and allowances, and
- have no other taxable income.
If you have other assessable income you may still need to pay some tax. If you have no tax payable, the beneficiary tax offset is not available to be used. To claim the offset, you must declare the payment you receive at the correct item on your tax return. ATO will automatically calculate the offset for you while processing your tax return.
3. If you maintained an invalid or invalid carer
The beneficiary tax offset is available if you receive certain Australian Government allowances and payments.
You may be entitled to a tax offset if you maintained an invalid who was your:
- child aged 16 years or older
- sibling aged 16 years or older
- spouse's child aged 16 years or older
- spouse's sibling aged 16 years or older
- parent, or
- spouse's parent
and they must have received one of the following:
You may be entitled to a tax offset if you maintained an invalid who was:
- your spouse
- your parent, or
- your spouse's parent
and they cared for your or your spouse’s invalid child aged years or older or your or your spouse's sibling aged 16 years or older and:
- received a carer payment or allowance for the care they provide for that person, or
- been wholly engaged in providing care to a person receiving
- a disability support pension under the Social Security Act 1991
- a special needs disability support pension under the Social Security Act 1991, or
- an invalidity service pension under the Veterans’ Entitlement Act 1986.
4. Income tests
Income tests are used to work out your eligibility for a number of tax offsets and benefits, which can reduce the amount of tax you have to pay.
ATO use a number of items from your tax return when applying income tests. You should ensure that you complete all items that apply to you in the income tests section of your return.
A number of offsets, benefits and obligations are assessed using a family income threshold. If you have a spouse, you should include your spouse's income in the relevant section of your tax return.
Depending on your circumstances, any of the following tests may be used to assess your entitlements:
- Adjusted taxable income (ATI)
- Rebate income
- Income for Medicare levy surcharge purposes
- HELP and SFSS repayment income
- Super income tests
ATO use income tests to assess the following items in your tax return:
- Net medical expenses tax offset for disability aids, attendant care or aged care
- Invalid and invalid carer tax offset
- Seniors and pensioners tax offset
- Medicare levy surcharge (lump sum payment in arrears) tax offset
- Spouse super contributions tax offset
5. Low-income earners tax offsets
You may be eligible for a tax offset if you are a low-income earner and you are an Australian resident for income tax purposes.
You don't have to claim this offset. ATO will work it out for you when you lodge your tax return. The offset can only reduce the amount of tax you pay to zero and it does not reduce your Medicare levy.
If your taxable income is less than $66,667, you will get the low income tax offset. The maximum tax offset of $445 applies if your taxable income is $37,000 or less. This amount is reduced by 1.5 cents for each dollar over $37,000.
If you are under 18 as at 30 June of the income year and you have unearned income, your low income tax offset cannot reduce the tax payable on this income.
6. Medical expenses tax offsets
The net medical expenses tax offset is being phased out.
From 2015–16 until 2018–19, claims for this offset are restricted to net eligible expenses for disability aids, attendant care or aged care.
Net expenses are your total eligible medical expenses minus refunds you, or someone else, received from:
- National Disability Insurance Scheme (NDIS)
- Private health insurers.
This offset is income tested. If you are eligible for the offset, the percentage of net medical expenses you can claim is determined by your adjusted taxable income (ATI) and family status.
7. Senior Australians and pensioners tax offsets
If you're a Senior Australian, you may be eligible for the seniors and pensioners tax offset (SAPTO).
The SAPTO can reduce the amount of tax you are liable to pay. In some cases, it may reduce your tax liability to zero and you may not have to lodge a tax return.
To be eligible for this tax offset, you have to meet certain conditions relating to your income and eligibility for an Australian Government pension or allowance.
If you're a senior, you must meet the age requirement for the Age pension. This includes if you qualified for the Age pension, but did not receive it.
Depending on your rebate income, you may receive a full, partial or nil offset amount.
If you have a spouse, you will be tested on your combined rebate income for the SAPTO eligibility. The amount of the tax offset is based on your individual rebate income.
In some cases, if you are both eligible for SAPTO, you may be able to transfer your spouse's unused offset to you. ATO calculate their transfer amount and include this amount when calculating your SAPTO.
8. Senior Australians and pensioners tax offsets
There are two super-related tax offsets for which you may be eligible:
- Australian super income stream tax offset
- Tax offset for super contributions on behalf of your spouse
Australian super income stream tax offset:
If you receive income from an Australian super income stream, you may be entitled to a tax offset equal to:
- 15% of the taxed element, or 10% of the untaxed element.
The tax offset amount available to you will be shown on your payment summary.
You're not entitled to a tax offset for the taxed element of any super income stream you receive before you reach your preservation age unless the super income stream is either a:
- disability super benefit, or death benefit income stream.
You're not entitled to a tax offset for the untaxed element of any super income stream you receive before you turn 60 years old unless:
- the super income stream is a death benefit income stream; and
- the deceased died after they turned 60 years old.
Tax offset for super contributions on behalf of your spouse:
If you make contributions to a complying superannuation fund or a retirement savings account (RSA) on behalf of your spouse (married or de facto) who is earning a low income or not working, you may be able to claim a tax offset.
You will be entitled to a tax offset of up to $540 per year if you meet all of the following conditions:
- For income years prior to 2017-18 the sum of your spouse's assessable income, total reportable fringe benefits amounts and reportable employer super contributions was less than $13,800
- For 2017-18 and later income years the sum of your spouse's assessable income, total reportable fringe benefits amounts and reportable employer super contributions was less than $40,000 and the contributions were not deductible to you
- the contributions were made to a super fund that was a complying super fund for the income year in which you made the contribution
- both you and your spouse were Australian residents when the contributions were made
- when making the contributions you and your spouse were not living separately and apart on a permanent basis.
- For 2017-18 and later income years your spouse had not exceeded their non-concessional contributions cap for the relevant year or had a total superannuation balance equal to or exceeding the transfer balance cap immediately before the start of the financial year in which the contribution was made.
- The tax offset for eligible spouse contributions can't be claimed for super contributions that you made to your own fund, then split to your spouse. That is called a rollover or transfer, not a contribution.
9. Zones and overseas forces tax offsets
If you live in a remote area or serve in forces overseas, you may be eligible for one of the following:
- Zone tax offset
- Overseas forces tax offset.
If you qualify for both an overseas forces and a zone tax offset, you can claim only one of them, but you may claim the highest one.
Zone tax offset:
You may be able to claim a zone tax offset if your usual place of residence is in a remote or isolated area of Australia (zone), not including an offshore oil or gas rig.
Eligibility for the zone tax offset changed on 1 July 2015. Therefore, we will be covering this offset in two parts.
Part-1) Eligibility from 1 July 2015:
From 1 July 2015, you can claim the zone tax offset if your usual place of residence was in a remote or isolated area (known as a zone) during the income year.
If your usual place of residence was in a zone for less than 183 days in the income year, you may still be able to claim the tax offset, as long as your usual place of residence was in a zone for a continuous period of less than five years and:
- you were unable to claim in the first year because you lived there less than 183 days
- the total of the days you lived there in the first year and the current income year is 183 or more. The period you lived in a zone in the current income year must include the first day of the income year. Any discretion exercised by the Commissioner for the zone tax offset will be made with reference to your usual place of residence.
Part-2) Eligibility prior to 1 July 2015:
Prior to 1 July 2015, to qualify for the zone tax offset, you must have lived or worked in a remote area (not necessarily continuously) for either:
- 183 days or more during the income year
- 183 days or more in total during the current and previous income years – but less than 183 days in the current year and less than 183 days in the previous income year – and you did not claim a zone tax offset in your previous year's tax return.
Overseas forces tax offset
You may be eligible for an overseas forces tax offset if you serve in a specified overseas locality as a member of one of the following:
- the Australian Defence Force
- the Australian Federal Police in the United Nations peacekeeping force in Cyprus
- a United Nations armed force, and your income is not specifically exempt from tax
Periods of service for which your income was exempt foreign employment income are excluded in working out your eligibility for the tax offset.To claim the full tax offset, you must have served in an overseas locality for 183 days or more in the income year. If your overseas service was less than 183 days, you may be able to claim part of the tax offset.
To claim the full tax offset, you must have served in an overseas locality for 183 days or more in the income year. If your overseas service was less than 183 days, you may be able to claim part of the tax offset.