Low income tax offset - whether refundable

Is the taxpayer entitled to a refund of the low income tax offset under section 159N of the Income Tax Assessment Act 1936 (ITAA 1936) where the amount of the tax offset exceeds the amount of the tax payable?

No. The taxpayer is not entitled to a refund of the low income tax offset under section 159N of the ITAA 1936 where the amount of the tax offset exceeds the amount of the tax payable.

The taxpayer's taxable income (for the 1993-94 or later years) is below the tax-free threshold.

The taxpayer was below age pension age.

A low income tax offset is available under section 159N of the ITAA 1936 for a taxpayer whose taxable income is less than $24 450 in the year of income.

The maximum allowable tax offset of $150 applies if taxable income is $20 700 or less. This amount is reduced by 4 cents for each dollar over $20 700. The tax offset for low income earners was introduced from the 1993-94 year of income onwards.

Section 160AD of the ITAA 1936 provides that the sum of any tax offsets allowable shall not exceed the amount of tax which would otherwise be payable by the taxpayer.

Therefore generally the amount of a tax offset is limited to the amount of tax payable. The exception to this is where the tax offset is a refundable tax offset under Division 67 of the Income Tax Assessment Act 1997 (ITAA 1997). Division 67 of the ITAA 1997 allows for a refund of certain tax offsets where the taxpayer's offsets exceed the tax payable. Section 67-25 of the ITAA 1997 lists the tax offsets which are refundable. The tax offset available under section 159N of the ITAA 1936 is not included in this list and therefore is not refundable.

The taxpayer's taxable income was under the tax-free threshold and therefore there was no tax payable. As the low income tax offset under section 159N of the ITAA 1936 is not a refundable tax offset, the taxpayer is not entitled to receive a refund of that tax offset.