The 2025–26 financial year brings welcome relief for many Australians with the introduction of the Cost of Living Tax Offset. Designed to ease pressure from rising grocery bills, energy costs, and inflation, this one-time measure provides up to $1,200 in tax relief. But how does it work, who qualifies, and when will you benefit? Let’s break it down in simple terms.
What Is the Cost of Living Tax Offset?
The Cost of Living Tax Offset is a temporary tax rebate available only for the 2025–26 financial year. It reduces the amount of tax you owe but will not carry over into future years. Unlike ongoing tax reforms, this offset is short-term support to help households cope with higher living expenses.
Who Is Eligible?
To qualify, you must:
- Be an Australian resident for tax purposes
- Lodge a 2025–26 tax return
- Have a taxable income up to $144,000
Anyone above this threshold will not receive the offset.
How Much Can You Get?
The amount depends on your taxable income. Here’s a simplified breakdown:
| Taxable Income | Offset Amount |
|---|---|
| $0 – $37,000 | Up to $265 |
| $37,001 – $48,000 | $265 + 8.5¢ for each $1 above $37,000 |
| $48,001 – $104,000 | Maximum $1,200 |
| $104,001 – $144,000 | Phases out at 3¢ per $1 above $104,000 |
Important: The offset is non-refundable. This means it can reduce your tax bill but will not create a refund larger than the tax you pay.
Why Was It Introduced?
Rising costs for essentials like food, fuel, rent, and electricity have placed financial stress on families and individuals. The government designed this offset as a temporary relief measure to give Australians extra breathing space during difficult economic conditions.
How Will You Receive It?
You don’t need to apply separately. The offset will automatically apply when you lodge your 2025–26 tax return with the Australian Taxation Office (ATO). If you’re eligible, your final tax payable will be reduced by the appropriate offset amount.
Budget and Economic Impact
The measure is expected to cost the federal budget around $11.3 billion over the forward estimates. Economists note it is short-term relief, not a long-term tax reform. Debate continues about whether such temporary measures are the best way to support households.
Key Takeaways
- Maximum benefit: $1,200 for incomes between $48,001 and $104,000
- Automatic application: No need to apply separately
- Temporary measure: Only applies to the 2025–26 financial year
- Income limit: Phases out completely above $144,000
FAQs on the Cost of Living Tax Offset
Q1: Do I need to apply for the offset?
No, it will be automatically applied when you lodge your tax return.
Q2: Can I get the offset if I don’t pay tax?
No, since it is non-refundable, you must have a tax liability for it to apply.
Q3: What if my income is over $144,000?
You won’t be eligible once your taxable income exceeds this threshold.
Q4: Will the offset continue beyond 2025–26?
No, it is a one-year temporary measure only.
Q5: How do I know how much I’ll get?
It depends on your taxable income. The ATO will calculate your offset when processing your tax return.
Conclusion
The Cost of Living Tax Offset 2025–26 offers meaningful relief of up to $1,200 for millions of Australians. While it won’t solve rising costs long-term, it provides immediate support for households struggling with inflation and higher bills. Make sure you lodge your 2025–26 tax return to benefit automatically and check the ATO website for full details on eligibility.