What is a tax offset?
Wednesday, February 7th, 2007A tax offset is a reduction in tax allowed to a taxpayer to provide tax relief.
To qualify, a taxpayer is generally in the lower income bracket, but this is not always the case.
The offset reduces the tax owing, not the taxable income, and can only reduce the tax to zero. It will not result in a refund. But there are always exceptions to any rule, and this is no different.
The exceptions are:
- 30% private health insurance rebate. If you don’t claim it when you take out your private health, you can claim it at tax time.
- The franking credit. Any excess imputation credits paid on dividends is refunded.
- Excess baby bonus is refunded
- Landcare and water tax offset can be carried forward to reduce a future tax liability. This is one claim I have never come across in all my tax years.
Tax credits do not reduce the medicare levy or HELP/HECS debt in most cases.
Some tax offsets need to be calculated, others the ATO will calculate bases on the information you have entered on your tax return.
There are four groups of tax offsets.
Dependent tax offsets
- Spouse (no child or student)
- Child-housekeeper
- Housekeeper
- Parent or spouses parent
- Invalid relative
- baby bonus
- 30% child care rebate
Tax offset dependent on source and level of income
- Low income/beneficiary
- Pensioner
- Senior Australian
- Superannuation or annuity pension
- Franking offset
- Mature age worker
- Entrepeneurs tax offset
- Interest from land transport facilities tax offset scheme
Offsets for specifc expenditure
- Superannuation condtributions on behalf of spouse
- 30% private health insurance
- 20% on net medical expenses over $1500
- Landcare and water facility
- Heritage conservation work
Zone or overseas forces tax offset
- Members of armed forces stationed overseas or in remote areas
- If you live in a remote area
may be entitled to a zone offset.
Another way to describe the difference between a tax offset and a tax deduction
Dave, commenter number 9 below, came up with a nice simple explanation of the difference between a tax offset and a tax deduction.
tax deduction = deduction in “taxable income” amount
tax offset = deduction in “tax payable” amount
Thanks Dave.
February 10th, 2009 at 4:00 pm
what is the difference between a deduction and a offset
February 11th, 2009 at 3:16 pm
please advice Dependent tax offsets:
# Housekeeper
# Parent or spouses parent
February 11th, 2009 at 5:14 pm
A Tax offset is a reduction in the tax you need to pay. Generally does generate a refund (although this is not always the case i.e. medical offset). Maximum rebate/offset can reduce your tax to nil. If your tax debt is $600 and you are entitled to an offset of $750, in most cases, you will only be given the offset of $600. The most common offset is given because of low income circumstances (including the low income offset)
Deductions are claims you are able to make to reduce the tax you pay. This can result in a refund. The deduction must be directly related to how you earn your income. i.e. you may be training as an apprentice and have to travel to school as part of this. If you keep your receipts, you may be able to claim back some of these costs – books, some travel, some fees, etc.
If you would like a more detailed explanation, or this is not clear, please let me know. If you want specific information for a specific offset or deduction, ask and I will do my utmost to answer.
February 11th, 2009 at 5:17 pm
Housekeeper tax offset
You need to be an Australian resident during the tax year to be eligible for any tax offset. Also note that entitled means you were eligible, even if you did not claim.
Keeping house means more than simply minding the children or performing domestic duties. You must also have some responsibility for the general running of the household.
A housekeeper is a person who worked full time keeping house for you and cared for:
• A child or yours aged under 21 who was your dependent
• A spouse who received a disability support pension
• An invalid relative who was your dependent and for whom you are able to claim a dependant tax offset.
If you meet the above criteria, then you may be able to claim a housekeeper tax offset if you meet the following conditions:
• You did not have a spouse and were not able to claim the child-housekeeper tax offset (where your child is the housekeeper and meets the above criteria)
• You were not entitled to family tax benefit (FBT) Part B
Or
• You did have a spouse who received a disability support benison and you were not entitled to claim a dependent spouse tax offset under part A
• Neither you or your spouse were entitled to FBT part B or were only entitled to it under the shared care rate
• Special circumstances applied
Special circumstances
• Your spouse deserted you and you did not enter into a de facto relationship
• You had a child with a severe mental disability who needed constant attention
• Your spouse suffered an extended mental illness and was medically certified as being unable to take part in the care of the children
The maximum you were able to claim in 2007-2008 tax year was $1711 or $2051 if you had an eligible dependant child or student.
You may be able to claim part of the offset even if it wasn’t for the full year.
It sounds complex but it is not really. If you are not able to claim Family Tax Benefits and you had to employ a housekeeper to look after children/relatives while you work. Remember, a housekeeper is not just a babysitter.
Information on parent or spouses parent to follow
February 11th, 2009 at 5:40 pm
Parent, spouses parent or invalid relative offset.
You cannot claim for a relative who lives overseas or who is visiting.
• They must be a resident for tax purposes.
• They must be maintained by you.
You need to know their separate net income. Your offset will be reduced accordingly depending on how much income they receive, as with all offsets.
The maximum tax offset you could claim was $745 for each dependant invalid relative and $1489 for each dependent parent. (2007)
The formula gets a little more complex here, and the offsets may have changed. They don’t generally go down, so this is the minimum. Am still waiting on the current years offsets. In 2007, the base amount of separate net income was $285. The offset reduced from there onwards.
If you meet the criteria, make sure you mention it to the person who is preparing your tax return. These offsets are often forgotten. If you think you might, but aren’t sure, still ask. If they are using a good program, it should automatically calculate this based on the information you give and will either allow or disallow. It is not an error on the return.
These offsets, unlike the over 55 offset and low income offset, are not automatic. Make sure you alert the tax preparer. They are rare enough that they are easily overlooked.
February 11th, 2009 at 5:43 pm
Tisharni/Jennifer. If you need more clarification, please ask. This was a long-winded reply. I hope I didn’t confuse you too much.
Cheers
Calder
May 11th, 2009 at 1:25 pm
can you show me a computation on where a tax-offset is included?
May 11th, 2009 at 9:00 pm
Different tax offsets are calculated differently.
The best place for examples is the ATO site itself. Go to the site (www.ato.gov.au/), and type “Tax Offset” into the search field and choose the tax offset you want information about. On the right hand side of the screen that comes up is a “Contents” section. There is usually a calculated example here.
Two calculations with worked examples are:
Mature age offset : http://www.ato.gov.au/individuals/content.asp?doc=/content/56588.htm
Beneficiary tax offset : http://www.ato.gov.au/individuals/content.asp?doc=/content/32018.htm. This one has a calculator
August 28th, 2009 at 11:46 pm
Colder; a much easier explanation would be
tax deduction = deduction in “taxable income” amount
tax offset = deduction in “tax payable” amount
August 30th, 2009 at 3:20 pm
Totally agree, Dave. And if it’s okay with you, I’d like to add this to the body of the post.
Thanks
September 17th, 2009 at 10:41 am
Can I claim dependent spouse offset if my fiancee is a student (doing phD and receiving tax-free scholarship)?
September 21st, 2009 at 7:01 am
Is it a government scholarship? If it is, then the maintenance or accommodation component of the scholarship will need to be declared as part of your spouse’s separate net income (SNI) on your tax return. There’s a separate net income calculator on the ATO site.
Your spouse’s total income (including excempt income) needs to be less than $8,681 to claim the offset, and less that $282 to claim the full offset.
A quick calculation:
September 30th, 2009 at 4:42 pm
Hi Calder, it’s a scholarship from the university, but the scholarship does not specified anything for accommodation. Could you please explain what is maintenance? Thanks
October 28th, 2009 at 7:33 pm
We have a query about the 20% tax offset on net medical expenses over $1,500.
My wife and I both work, and both have to lodge a tax return. How do we manage the claim for this?
Is the $1,500 threshold an individual threshold, or a household threshold?
We have auto-filled our medicare details, and that has given us our separate medicare data in our separate tax returns. Are we supposed to also separate the chemist spending and medical expenses?
Or should everything be claimed on one tax return, and nothing on the other?
Thanks!
November 4th, 2009 at 6:28 am
Hi Penny. Sorry it has taken me so long to get back to you. Unexpected events caused me to be away for the last two months.
Maintenence is what you live on - living expenses which may include accommodation. If you are unsure what is being paid for, it is best to go back to the scholarship provider for full details.
November 4th, 2009 at 6:36 am
Mark
My apologises to you also for the delay in responding. Hope it is not too late. If you have submitted your return, you can always do an amendment.
Medicare is best claimed by the one person. Take the information out of one of the returns. The tax office is aimiable enough to allow one person to claim all medical expenses for a family. Naturally, you will make sure that the offset goes against the person it would most help.
Re the chemist expenses. Don’t separate chemist and medical. Note that only scripts can be claimed, not off-the-shelf medicine and incidentals.
November 7th, 2009 at 11:49 pm
Ive been reading the posts above on the difference between offsets/refunds and am a bit confused. If i have bought an investment property and had to replace the microwave which was less than $300. On the ATO website they discuss the topic of immediate deductions for certain non-business deprecting assets costing $300 or less, for which this qualifies. Now my question is when it comes to tax time will i get the $300 back? or does a refund mean I only get a portion of it back?
November 8th, 2009 at 7:57 am
Tyson
Firstly, a tax offset is not the same as a deduction.
A deduction is an expense you have paid that you can claim back to reduce your income. The tax you have to pay is calculated on your reduced income. Your rental expense (less than $300) would fit into this category.
A tax offset reduces the tax you have to pay. It is not always related to your work. It can also be an amount the government allows for reasons like low income, living in a remote area or when you have a dependent spouse.
You do not get the full $300 back. Your income is reduced by $300 and your income tax is calculated on this new amount. Basically, if you are in the .15 cent tax bracket (income less than $34,000) you would get .15 x $300 =$45 back. If your income is in the .30 cents bracket, you would get $90 back. The only time you will get the full $300 back is if your income falls below the income tax threshold of $6000. (You would actually get all your tax back if your income goes below $14,000 because the low income tax offset comes into play.)
Be aware that the tax reforms coming in next year will change offsets. Rental losses will be affected.
August 1st, 2010 at 2:21 pm
Hi,
This is regarding claiming a tax offset for my spouse.
My situation was the following:
1) I was working in Australia for almost all of the year on a Work Permit Visa.
2) My wife was studying overseas for almost 9 months of the year whose expenses were paid by me. She stayed with me after finishing her educations for 1 month in Australia.
3) We moved back to India where we both joined jobs back in India.
My question is whether I am eligible to claim tax offset for my wife for any of the last year, including the time she was studying and/or living with me, except the last month where she also had a job.
August 1st, 2010 at 4:59 pm
Vinay
It’s not clear here whether you or your wife were considered residents for Australian taxation purposes. I suspect, from what you say, that your wife at least would not be.
If either one of you was not, then you would not be eligible for any dependant offsets.
August 9th, 2010 at 11:10 am
I have a query about the 20% tax offset on net medical expenses over $1,500.
I am work and my wife is not working (but she has bought and sell some shares in last year).
We have the auto filled our medicare details, and that has given us our separate medicare data in our separate tax returns.
Can I claim everything on my tax return and take the medicare information out from my wife?
August 9th, 2010 at 12:53 pm
I have a query about the 20% tax offset on net medical expenses over $1,500.
I am working and my wife is not working (but she has brought and sell some shares are last year)
We have the auto filled our medicare details, and that has given us our separate medicare data in our separate tax returns.
Can I claim everything on my tax return? And take the information out of from my wife?
August 13th, 2010 at 10:32 pm
Hi,
Could you please tell me if it is allowable to claim two offsets for the one person? So, if my dependent spouse is also a student (and still my dependent) is it allowed for me to claim both the dependent spouse offset and the student offset or do I pick one or the other?
Thanks for your help.
August 16th, 2010 at 6:46 pm
Jordan
You should be able to take it out of one and put it into the other.
August 16th, 2010 at 6:50 pm
Angela, could you be more specific with the details here, please. I am unsure of which student offset you mean. The only educational offset that comes to mind is the educational tax offset for primary and secondary school students. Is this the one you mean?
August 17th, 2010 at 8:15 pm
Hi Calder,
I have a question regarding the tax offset for parents. My mum is an Australian citizen and my dad is a permanent resident. They both have stopped working a couple of years ago and I have been supporting them wth my Income. For the last tax year they did not stay in Australia for the whole year. Are they still qualified for “Australian resident” for the full year or just for the period they actually “resided” in Australia?
Thanks
Jimmy
August 21st, 2010 at 1:26 pm
Hi Calder,
I am gonna pay my tax for the first time and my gross income is A$20972, tax withheld: $2473 (I only work 10 months for 09/10 finance year). I was wondering how much can i get back because i heard that if u pay for the first time you get it all back is that true ? Can u please tell me how much i can get back if i am a pastry worker in a food factory. Thanks
August 23rd, 2010 at 6:26 am
Jimmy
This is a hard question to answer without knowing more details, sorry.
Are your parents getting any income at all? If they are getting some income, e.g. a pension, then they are not considered as dependants.
But as I say, for the rest, I’d need to know more to be able to say for sure.
August 24th, 2010 at 9:16 pm
Hi Calder,
My parents are not getting pensions or any other payments from the cenrelink at the moment. They don’t have any investments either but they do have some savings however it is not invested into any term deposits so hardly any interest. So I’m pretty sure I can say they do not have any income at all.
They traveled to oeverseas a lot last year and only lived in Australia for about 3 months. When they were overseas I still supported them with living expenses. So i’m wondering whether I can still claim the tax offset for the period they lived overseas or I’m only allowed to claim for the period they were in Australia.
Please let me know if you still need more information.
Thanks
Jimmy
August 26th, 2010 at 6:01 pm
Calder
Please help me above case, thank you very much
August 26th, 2010 at 7:15 pm
Steve
No. It’s not true that you always get your money back in the first year. You pay tax on what you earn right from the start.
I think that often this misconception comes about because many people start working half-way through the tax year and thus are on low income for that year, so they get a lot of tax back.
It’s impossible without knowing more details to say specifically what you will get, but I can give you a rough idea of what someone in your situation might be likely to get back.
If you got any government/youth allowances (including Centrelink payments) this takes your income up. Likewise, if you earned interest or made money from shares or anything else.
Assuming that you’re not exempt from Medicare, that no other income was received, that you have no dependants, that you are a resident for tax purposes, that you haven’t been doing any schooling, that you have no shares and have no other expenses (including no government debts like Centrelink or child support) then based on straight income of $20,972, tax due on that amount is $2,245.80 plus Medicare of $248.40, less a low income tax offset of $1,350.
Total tax overall is $1,144.20. You have paid $2,473 which means if there are no changes you should get a refund of $1,328.80.
Obviously I have to put a disclaimer here. This is a basic idea. Your circumstances will make a difference, along with claims you make.