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Rebates and Offsets

Contributed by AnnetteMorgan and current to 27 July 2018

A rebate (also known as a tax offset) operates as a tax reduction. It is subtracted from your tax after your tax payable has been calculated. This is in contrast to a deduction, which is subtracted from your assessable income in determining your taxable income. Therefore, a rebate is much more valuable than a deduction. However, the total amount of rebates that you are allowed cannot exceed the tax otherwise payable unless specifically stated as a refundable tax offset). There are a number of situations under the Acts in which rebates are payable, as summarized in the following sections.
  • Private Health insurance - Refundable Tax Offset
  • Low-income earners
  • Senior Australians and pensioners
  • Zones and overseas forces
  • Beneficiary Rebates and Other Government Benefits and Allowances
  • Super related tax offsets

Private health insurance rebate

A tax rebate is available to assist with the cost of private health insurance. The amount of the rebate which is outlined in the table below is claimed on the cost of private health insurance, including ancillary cover, and can be received as a tax offset, as a direct payment from the government or in the form of reduced health insurance premiums.

The rebate amount depends on your income and how old you are. The table below explains how the rebate is calculated, based on the age and income tier that applies to relevant taxpayers.

Base tier

Tier 1

Tier 2

Tier 3

Income thresholds

Singles

Up to $90,000

$90,001 - $105,000

$105,001 - $140,000

$140,001 and above

Families

Up to $180,000

$180,001 - $210,000

$210,001 - $280,000

$280,001 and above

Rebate entitlement - based on age and income as of 1 April 2018*

Less than 65 years

25.415%

16.943%

8.471%

0%

65-69 years

29.651%

21.180%

12.707%

0%

70 years+

33.887%

25.415%

16.943%

0%
Family tiers apply to single parents and couples (including de facto couples). For families with children, the thresholds are increased by $1,500 for each child after the first.

The government reviews the rebate every year and adjusts it annually on the 1st of April.

As noted below, you will have to pay Medicare levy surcharge if you have an adjusted taxable income exceeding $90,000 for singles and $180,000 for families and do not have adequate private patient hospital insurance.

Low income rebate

You are entitled to a rebate if your taxable income is less than $37,000. The maximum rebate is $445, reduced by 4 cents for every $1 by which your taxable income exceeds $37,000

Low and middle income rebate

The low and middle income tax offset is available to individuals who are Australian residents during 2018/19, 2091/2020, 2020/2021 and 2021/2022 income years and have taxable income for that year not exceeding $125,333.
Amount of relevant income Amount of offset
$0 - $37,000 $200
$37,001 - $48,000 $200 plus 3% of the amount of relevant income that exceeds $37,000
$48,001 - $90,000 $530
$90,001 - $125,333 $530 less 1.5% of the amount of relevant income that exceeds $90,000
Taxpayers are entitled to both the Low income rebate and the low and middle income rebate

Seniors and pensioners tax offset (SAPTO)

Certain low income aged persons, both pensioners and "self-funded retirees", are entitled to a this offset.

The classes of person eligible to claim the offset are as follows:

  • a taxpayer who, at some point during the income year: (a) is eligible for a pension, allowance or benefit under the Veterans' Entitlements Act 1986 ; (b) has reached veteran pension age under that Act; and © is not in gaol
  • a taxpayer who, at some point during the income year: (a) is qualified for an age pension under the Social Security Act 1991 ; and (b) is not in gaol, or
  • a taxpayer whose assessable income includes an amount of: (a) social security pension or education entry payment under the Social Security Act; or (b) service pension, carer service pension, income support supplement or Defence Force Income Support Allowance or a like payment under the Veterans' Entitlements Act; and the taxpayer is not in gaol.
This therefore includes: (a) persons who were eligible for a veterans pension, allowance or benefit but did not receive it, eg because of the assets or income tests; and (b) persons who did not satisfy the residency criteria for an age pension but were eligible for that pension on alternative grounds.

The SAPTO is calculated based on a taxpayer's "rebate income". Rebate income is defined as the sum of the following amounts:

  • the individual's taxable income for the year of income
  • the individual's reportable superannuation contributions for the year of income
  • the individual's total net investment loss for the year of income, and
  • the individual's adjusted fringe benefits total for the year of income.
To be eligible for the offset, the person must have rebate income below a certain cut-out threshold. The maximum amount of the offset, and the cut-off threshold, vary according to the taxpayer's marital status. The 2018/19 levels are as follows:

  • for single persons the maximum offset is $2,230 which, when combined with the low income rebate means that no tax is payable on a rebate income of $32,279 or less. The maximum offset is reduced by 12.5 cents for each dollar of rebate income in excess of $32,279 -- the shade-out threshold. This means that once the person's rebate income reaches $50,119, known as the cut-out threshold, no part of the offset is available
  • for each partner of a couple, the maximum offset is $1,602 which, when combined with the low income rebate, means that no tax is payable by a partner with a rebate income of $28,974 or less. The maximum offset is reduced by 12.5 cents for each dollar of rebate income in excess of $28,974. This means that once the partner's rebate income reaches $41,790, no part of the offset is available to that partner, and
  • for each partner of an illness-separated couple, the maximum offset is $2,040 which, when combined with the low income rebate, means that no tax is payable by a partner with a rebate income of $31,279 or less. The maximum offset is reduced by 12.5 cents for each dollar of rebate income in excess of $31,279. This means that once the partner's rebate income reaches $47,599, no part of the offset is available to that partner.
The shade-out and cut-out thresholds for SAPTO have been amended to ensure that they match the thresholds for the low income tax rebate. For the purpose of determining whether a taxpayer who has a spouse satisfies the cut-off threshold, the taxpayer's rebate income is taken to be half the couple's combined taxable incomes. For 2018/19, for couples, the combined rebate income threshold is $83,580 and, for illness separated couples, it is $95,198. However, the taxpayer's actual rebate income is used in calculating the amount of the offset.

A person who was married for only part of the year can claim on whatever basis gives the bigger rebate entitlement.

In accordance with the general rule, the offset is limited to the amount of tax otherwise payable. A person can therefore have some "unused" offset if their tax is very low. The benefit of this is normally lost. However, if a partnered person is eligible for the offset, and their spouse is eligible for the offset, there is provision for some or all of the unused offset/rebate to be transferred to the other person, in reduction of their tax. In determining the amount of unused offset/rebate, no other offsets or credits are taken into account.

Zone rebates

A rebate of tax is available to individuals who are classed as residents of specified remote areas of Australia. The rebate is made up of a fixed amount and a percentage of the relevant rebate amount . That amount is the total of the rebates that you may claim for dependants.

The specified remote areas of Australia covered by the zone rebate are comprised of two zones, Zone A and Zone. In general, Zone A comprises those areas where the factors of isolation, uncongenial climate and the high cost of living are more pronounced and Zone B comprises the less badly affected areas. The rebate for ordinary Zone A residents is accordingly higher than the rebate for ordinary Zone B residents. A special category of zone allowances is available to taxpayers residing in particularly isolated areas ("special areas") within either zone.

The areas of mainland Australia and Tasmania covered by Zones A and B are generally in the west, north and centre of Australia. Special areas of Zone A include Macquarie Island, Norfolk Island, Cocos (Keeling) Islands, Christmas Island, Heard Island, McDonald Islands, Lord Howe Island and the Australian Antarctic Territory. Zone B also covers islands forming part of Australia that are adjacent to the coastline of the portions of the mainland and Tasmania. Special areas of Zone B include King Island (Tas) and the Furneaux Group of islands (Tas).

The zone rebate excludes "fly-in fly-out" and "drive-in drive-out" (FIFO) workers where their normal residence is not within a "zone". FIFO workers who spend more than 183 days in a particular zone, but whose normal residence is not in that zone, will not qualify for the zone tax offset for that zone and will instead be taken to be a resident of the area incorporating their normal residence.

An Australian zone list of towns falling in Zones A and B, as well as the special areas in the zones, is available from the ATO website. A non-exhaustive list is normally contained in the Individual tax return instructions supplement.

Overseas defence forces rebate

You are also entitled to a rebate if you serve in qualifying places overseas as a member of the Australian Defence Forces. If the total period of service in the place for the income year is 183 days, or if the taxpayer dies while on service in the place, the maximum rebate allowable is $338 plus 50 per cent of a dependant or housekeeper rebate to which the taxpayer was entitled, or a sole parent rebate to which the taxpayer would have been entitled had it not been abolished. In other cases, the rebate is apportioned on a time basis.

Beneficiary rebates

This rebate ensures that, if your income consists wholly of government allowances, you pay no tax. The rebate is calculated to entirely offset the tax liability paid on the allowances during the year. The ATO calculates the rebate and you simply have to state the amount of the allowance you received during the year.

The various payments that entitle a taxpayer to the beneficiary rebate are:

  • certain Australian social security payments -- ie Newstart allowance, sickness allowance, special benefit, partner allowance, mature age allowance and widow allowance
  • the parenting payment (partnered) to the extent that it is not exempt
  • exceptional circumstances relief payments or payments of restart income support (formerly called drought relief payments)
  • amounts paid as wages or supplements to participants in Community Development Employment Projects
  • farm household support paid by way of a grant of financial assistance
  • Commonwealth education or training payments -- ie youth allowance; allowances paid under Austudy, ABSTUDY, the Veterans' Children Education Scheme and the Assistance for Isolated Children Scheme;
  • interim income support payments made to farmers affected by drought.
Detailed information on the availability and extent of the rebate is contained in tax return instructions issued by the ATO each year.

Low income superannuation tax off-set (LISTO)

From 1 July 2018, individuals who have an adjusted taxable income below $37,000 in a year may be entitled to a low income superannuation tax offset (LISTO) for their concessional contributions which are made to a complying superannuation fund or RSA. This is credited to your superannuation account.

The eligibility conditions to qualify for the LISTO are discussed below.

The amount of LISTO payable in a year is 15% of the individual's concessional contributions for the year, up to a maximum of $500, and is non-refundable.

The purpose of the LISTO is to compensate low income individuals for the 15% contributions tax on the individual's concessional contributions (eg employer contributions and deductible personal contributions as the 15% contributions tax can otherwise mean that some low income individuals will be taxed at a higher rate on concessional contributions than if they had received the contributions as salary or wages.

The ATO determines an individual's entitlement to the LISTO, based on information provided by superannuation funds and RSA providers and other tax information available to the ATO on the individual.

The ATO may pay the LISTO to a superannuation fund, an RSA, an individual or an individual's legal personal representative, or a Superannuation Holding Accounts Special Account in a similar manner as for co-contribution payments.

Eligibility Conditions

An individual is entitled to the LISTO in an income year if the following conditions are met:

  • the person's concessional contributions for the financial year that corresponds to the income year are for a financial year on or after 1 July 2018
  • the person's adjusted taxable income for the year (see below) does not exceed $37,000

A person's "adjusted taxable income" (ATI) in an income year means sum of taxable income, adjusted fringe benefits total, foreign income that is not taxable in Australia, total net investment loss, tax-free pensions or benefits (not including superannuation income stream benefits that are tax-free), and reportable superannuation contributions (less any deductible child maintenance expenditure for that year).

It is notable that there is no age test for the LISTO eligibility.

Concessional contributions

A person's concessional contributions include employer contribution, deductible personal contributions, salary sacrifice contributions, allocations from a fund's reserves, and notional taxed contributions for individuals with a defined benefit interest. The LISTO may therefore be payable in relation to an amount that is not an actual contribution made.

Tax offset - contributions for spouse

An individual taxpayer is entitled to a tax offset in each year of income for contributions made to a complying superannuation fund or RSA for the purpose of providing superannuation benefits for his/her spouse if:

  • the taxpayer and the spouse were Australian residents at the time the contributions were made
  • the taxpayer has not deducted and cannot deduct an amount for the contributions under ITAA97 s 290-60), and
  • the total of the spouse's assessable income, for the income year, reportable fringe benefits total and reportable employer superannuation contributions for the income year is less than $40,000 for 2017/18 and later years
  • a taxpayer is denied entitlement to the spouse contributions tax offset in certain circumstances (see "Compliance with other caps" and "Additional conditions relating to taxpayer's spouse" below).
Certain amounts that are rolled over or transferred to a superannuation fund as a contribution, do not qualify for the tax offset.

The taxpayer is not subject to a work or age test. If the spouse for whom the contributions are made is under age 65, the spouse contributions may be accepted by the superannuation fund or RSA without restrictions. If the spouse is between age 65 and 70, he/she must satisfy a work test and, if the spouse is age 70 or over, the contributions cannot be accepted.

Compliance with other caps

From 2017/18, a taxpayer is not entitled to a spouse contributions tax offset in an income year if:

  • the taxpayer's spouse has exceeded his/her non-concessional contributions cap for the year ($100,000 in 2017/18 and 2018/19: or
  • before the start of the year, the taxpayer's spouse has a total superannuation balance that is equal to or exceeds the general transfer balance cap for the year ($1.6m in 2017/18 and 2018/19:

Additional conditions relating to taxpayer's spouse

A taxpayer is not entitled to a spouse contributions tax offset if:

  • the taxpayer is living separately and apart from his/her spouse on a permanent basis at the time of contribution, or
  • the contributions is made for the benefit of a non-member spouse in satisfaction of his/her entitlement of a superannuation interest in the fund under the family law.

A "spouse" of a person includes another person (whether of the same sex or a different sex) with whom the person is in a registered relationship or another person who, although not legally married to the person, lives with the person on a genuine domestic basis in a relationship as a couple.

Calculating amount of tax offset

An individual's tax offset amount in a year for making spouse contributions is calculated as 18% of the lesser of:

  • $3,000 reduced by the amount (if any) by which total income of the individual's spouse exceeds $37,000, and
  • the sum of the spouse contributions made by the individual in the income year
A taxpayer's tax offset for spouse contributions (including the sum of other tax offsets) can only reduce the amount of income tax otherwise payable by the taxpayer to nil. A refund of excess tax offset for spouse contributions is not allowed.

Spouse contributions which qualify for the offset are not assessable contributions of the recipient fund and they are counted as the spouse's non-concessional contributions.

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