Tax offset is a common term used during tax season. According to the Australian Taxation Office (ATO), a tax offset can directly reduce the tax payable by an individual on their taxable income in a financial year, provided they are eligible for it.

In this blog, we will explain how tax offsets work, their benefits and eligibility criteria, as well as provide some examples of typical tax offsets.

1. What Is A Tax Offset?

A tax offset is a way to reduce or offset the amount of tax an individual needs to pay on their taxable income within a given financial year. In Australia, various tax offsets are available, but you must meet the eligibility criteria to receive the benefits.

The amount of tax offset an individual may receive will depend upon:

  • Their taxable income, and
  • The amount of tax they need to pay.

2. How Does The Tax Offset Work?

Tax offsets, sometimes known as tax rebates, work by reducing or offsetting the tax payable by an eligible taxpayer at the end of the financial year.

You will not receive any offset if you do not have any tax to pay. Some tax offsets will require you to make a claim by making a note on your tax return or lodging paperwork. On the other hand, other offsets may be calculated for you by the Australian Taxation Office (ATO) and factored into your tax return when you submit it. In this case, you will not need to do anything extra.

3. Are Tax Offsets Refundable?

Most tax offsets are not refundable, meaning they cannot reduce your tax below zero. However, some tax offsets, like the private health insurance rebate, are refundable.


Let’s say you have a tax liability of $2,000, but you are also eligible for $2,500 in tax offsets. In this scenario, you won’t receive a $500 refund for the tax offset, but your tax liability will be reduced to zero. It’s important to note that tax offsets won’t cancel out or reduce specific expenses like the Medicare levy or Medicare levy surcharge, as per the information provided by the ATO website.

4. What Are The Differences Between Tax Offsets And Tax Deductions?

Many people believe that tax offsets and tax deductions are the same. While both can help reduce tax liability, they are different. As per the Australian Taxation Office (ATO), a tax offset (also known as a tax rebate) reduces the payable income tax after it has been calculated based on your taxable income. On the other hand, a tax deduction reduces the taxable income before any tax has been calculated. 

To illustrate, if you owe $3,000 in taxes to the ATO based on your taxable income and qualify for tax offsets of $2,000, you will end up paying $1,000 in taxes. However, if you are eligible for tax deductions of $10,000 and earn $80,000 in a financial year, you will pay income tax only on $70,000 of your earnings.

5. Can I Claim Tax Offsets Along With Tax Deductions?

If you are eligible, you can claim tax offsets and deductions. These deductions can be claimed together with a tax offset, provided you meet the eligibility criteria set by the ATO. 

We recommend seeking assistance from a professional tax accountant to ensure you claim all the deductions you are entitled to. Additionally, you can visit the ATO website to explore the different offsets available to you.

6. Eligibility Criteria For Tax Offsets

To be eligible for the tax offsets, you need to be an Australian resident for tax purposes and pay tax on your taxable income. Your taxable income should also be less than the income thresholds specified for the tax offset.

Some Common Tax Offsets For Australians

The following are some of the common tax offsets that are available for eligible Australians.

  1. Super-related tax offsets
  2. Private health insurance tax offset
  3. Seniors and pensioners’ tax offset

Two super-related tax offsets apply directly to individuals. One such offset is for those receiving income from an Australian super income stream, and the other is for those contributing to their spouse’s super fund.

The ATO suggests that if an individual has received the Australian super income stream tax offset, it will either be:

  • 15% of the taxed element of the individual’s super stream income or
  • 10% of the untaxed element of the individual’s super stream income, generally up to a maximum offset limit.

To know the maximum offset limit and eligibility criteria, consult the ATO’s website for the most up-to-date information.

You may also claim a tax offset if you make an eligible super contribution on your spouse’s behalf (married or de facto). Your spouse should be earning under $40,000 or not work at all. 

Your contributions have to be either your spouse’s:

  • Retirement savings account (RSA)
  • Complying super fund

In this case, you may be able to claim a:

  • full tax offset of $540 if your spouse earns $37,000 or less and you pay $3,000 or more
  • partial tax offset if your spouse earns over $37,000 but less than $40,000 and you pay less than $3,000.

You will also need to meet the ATO’s eligibility criteria (provided on their website).

B. Private Health Insurance Tax Offset

Private health insurance (PHI) tax offset, also known as the private health insurance rebate, is provided by the Australian Government to encourage individuals to take out PHI. The offset is the amount the Australian Government contributes towards a person’s PHI.

This tax offset works slightly differently from other offsets as there is more than one way to claim it. You may be entitled to this tax offset if you take out or even renew an eligible PHI policy that can provide an appropriate level of PHI cover.

To claim this offset, you must have PHI. The ATO has mentioned that this offset is subject to income testing. You can claim it as a premium reduction, which can lower the cost of the health insurance policy charged by the provider. Alternatively, you can claim it as a refundable tax offset while filing your tax return.

C. Seniors And Pensioners Tax Offset

If you meet the age requirement for the Age Pension or receive another Australian Government pension from Centrelink or the Department of Veterans Affairs, you may qualify for the seniors and pensioners tax offset (SAPTO). Meeting the income or assets test for the age pension is not necessary to qualify for SAPTO as long as you meet the eligibility criteria.

If you are eligible, SAPTO can reduce the tax you are liable to pay by up to $2,230 for a single person or $1,602 per partner in a couple. To learn about the eligibility and other conditions, visit the official website of the ATO.

Understanding tax offsets can help you lower your overall tax bill. While they are beneficial, it’s important to note that these offsets cannot be refunded and are not separate payments. You can optimise your tax situation by taking advantage of available offsets and potentially saving money.

If you have any questions or want further advice on optimising your tax situation, please don’t hesitate to contact us. Our team of experts is here to help you navigate the complexities of taxation and ensure that you take advantage of all available benefits.

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