When it comes to reducing your tax bill, two terms often come up: Tax Offsets and Tax Credits. While both can lower the amount of tax you owe, they work in slightly different ways. Understanding the difference between them can help you take advantage of every tax benefit available to you.

What is a Tax Credit?

A tax credit directly reduces the amount of tax you owe on a dollar-for-dollar basis. In other words, if you’re eligible for a tax credit, the amount of tax you owe is decreased by the value of the credit.

Where these credits reduce your tax liability to zero, any remaining credits are refunded.

Examples of Tax Credits include PAYG tax withholding, Withholding Taxes and Franking Credits, GST Credits etc.

What is a Tax Offset?

A tax offset, also known as a rebate, works similarly to a tax credit

Tax Offsets typically only reduce the amount of tax you owe and can’t result in a refund. However, some Tax Offsets such as the private health insurance rebate can be refundable.

Examples of Tax Offsets include Low Income Tax Offset, Senior and Pensioner Tax Offset, Zone Tax Offset etc.

Both Tax Credits and Tax Offsets offer great ways to lower your tax liability but understanding how they work and what you qualify for can help you make the most of your tax return.

For more information contact Sixth Sense Tax today…