Tax Offsets – What are they?

Tax Offsets directly reduce the amount of tax you have to pay. They are different from deductions, which reduce your total assessable income and therefore your tax by your marginal tax rate. Each dollar of tax offset reduces your tax payable by a dollar, regardless of your taxable income. As a general rule, offsets can reduce your tax payable to zero but on their own cannot get you a refund. Tax Offsets cannot be used to reduce any Medicare levy you need to pay.

There are special tax offsets known as refundable tax offsets that can be used to pay your Medicare levy and you can even get a refund from them.

In short, Tax Offsets are used to:

• Introduce fairness in the way people in different circumstances are taxed, and
• Encourage people to do some things the government would like them to do.

Tax Offsets were once known as “rebates”.