A tax offset is different to a tax deduction. You'll remember from a previous post I explained how a tax deduction is taken off your income before tax is calculated.
With tax offsets (previously known as rebates), the offset is taken off the amount of tax you have to pay.
The ATO has identified three types of tax offsets – those that:
- provide tax relief for personal circumstances – for example, offsets for senior Australians and people living in remote areas.
- give you a credit for an amount of tax that has effectively already been paid – such as credits for franked dividends and foreign tax, and
- provide an incentive – for example, the tax offset for mature age workers and the private health insurance rebate.
In most cases an offset can only reduce the amount you have to pay to zero. If your offsets total more than your tax payable, you typically don't get a refund for the difference. Offsets which do provide a refund are the private health insurance rebate, franking tax offset and the baby bonus.
Alan provides a more detailed explanation and list of tax offsets available in his post at Dollars & Sense for Small Business.
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