How LITO Works
LITO directly reduces your tax bill — it's not a deduction, it's an offset. If you earn $30,000, your income tax is $1,888, but LITO reduces that by $700 to just $1,188.
| Taxable Income | LITO Amount |
|---|---|
| $0 – $37,500 | $700 (full) |
| $37,501 – $45,000 | $700 minus 5c per $1 over $37,500 |
| $45,001 – $66,667 | $325 minus 1.5c per $1 over $45,000 |
| $66,668+ | $0 |
You Don't Need to Claim It
LITO is applied automatically when you lodge your tax return. You can't claim it during the year through your employer — it only reduces your tax bill at tax time. This is why some low-income earners get a tax refund even when their employer has withheld the right amount of PAYG tax.
Effective Tax-Free Threshold
With LITO, you effectively pay no tax until about $21,884 — not $18,200. That's because LITO wipes out the tax on income between $18,201 and ~$21,884. Your real tax-free threshold is higher than the official one.
Frequently Asked Questions
Do I need to apply for LITO?
No. It's calculated automatically when you lodge your tax return.
Can LITO create a refund?
LITO can only reduce your tax to zero — it can't create a refund by itself. But if your employer has withheld tax during the year, LITO reduces what you owe, which often results in a refund.
Does LITO apply to non-residents?
No. LITO is only available to Australian residents for tax purposes.