Tax is confusing at the best of times. No matter how much the ATO try to simplify things, there are always hidden deductions, offsets, rules and regulations. So how do you know what to claim and offset? Often it’s best to talk to your accountant, but here is a quick guide to help you make sense of your tax rebates.
Tax rebates or offsets 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.
There are several offset categories from which you can claim and you will generally fit into one of these. The categories are:
- Receipt of government benefits
- Health insurance
- Medical expenses
- Senior Australian and pensioner allowances
- Super related tax offsets
- Low-income earners
- Zones and overseas forces
Let’s take a look at each individual category.
Receipt of government benefits
The beneficiary tax offset is available if you receive certain Australian Government allowances and payments.
No tax is paid if you:
- receive any of the qualifying benefits and allowances, and
- have no other taxable income
Any assessable income that you receive beyond these benefits may require some tax to be paid. To claim the offset, declare the payment you receive at the correct item on your tax return.
There are several offsets within this category. You may be entitled to a tax offset if you maintained your:
- child or sibling aged 16 years or older
- spouse’s child or sibling aged 16 years or older
- parent, or spouse’s parent if they are an invalid or carer
For more information about what constitutes an invalid or carer please go to the ato.gov.au website.
Entitlements to a private health insurance rebate or tax offset depend on your income level. The amount of private health insurance rebate you are entitled to receive is reduced if your income is more than a certain amount. 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
As the ATO states, net medical expenses are your total medical expenses minus refunds from Medicare and private health insurers that you, or someone else, received or are entitled to receive.
The net medical expenses tax offset is being phased out.
You may not be eligible to receive the medical expenses offset if other tax offsets have reduced your tax payable to zero.
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 and family status.
Senior Australians may be eligible for the seniors and pensioners tax offset (SAPTO).
SAPTO can reduce the amount of tax this demographic is liable to pay. In some cases, this offset may reduce your tax liability to zero and you may not have to lodge a tax return.
Eligibility is based on conditions relating to your income and eligibility for an Australian Government pension. You must meet the age requirement for the Age pension to be eligible for the offset.
In some cases, you may also be able to transfer your eligible spouse’s unused SAPTO to you.
Super related tax offsets
The two super-related tax offsets for which you may be eligible are:
- Australian super income stream tax offset
- Tax offset for super contributions on behalf of your spouse
The first offset occurs if you receive income from an Australian super income stream. If this is the case you may be entitled to a tax offset equal to:
- 15% of the taxed element, or
- 10% of the untaxed element
The 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 turn 55 years old 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
To receive the offset for super contributions on behalf of your spouse you must make contributions to a complying superannuation fund or a retirement savings account on behalf of your spouse (married or de facto) who is earning a low income or not working.
You will be entitled to a tax offset of up to $540 per year if you meet all of the following conditions:
- the sum of your spouse’s assessable income, total reportable fringe benefits amounts and reportable employer super contributions was less than $13,800
- 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
If you are a low-income earner, or work part-time, the ATO will work out the offset amount for you.
Zones and overseas forces
Zone tax offset
You must have lived or worked in a remote area (not necessarily continuously) for:
- 183 days or more during the current income year; or
- 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
If you lived in a zone for less than 183 days in the current income year, you may still be able to claim a tax offset as long as you lived 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; and
- the total of the days you lived there in the first year and in the current year is 183 or more
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:
- Australian Defence Force
- Australian Federal Police, or
- United Nations Armed Forces, and income relating to that service is not specifically exempt from tax
This is a basic offset guide, based on information provided by the ATO. For a more comprehensive guide to offsets, you should speak with your accountant or spend some time further investigating the ATO’s website.