Times have been rather hard and people have been facing a lot of economic challenges. The good news is that the annual budget factored in this and has some goodies. Besides the perks for businesses, the low and middle-income taxpayers have a great reason to celebrate.
The government has made a decision to extend the Low and Middle Income Tax Offset for another year. This is cushioning measure that was meant to lapse on 30th June this year. However, it will now be available until the 2022 tax year. This is a huge relief for many people who are struggling to make ends meet.
What Does Low and Middle Income Tax Offset Mean?
The Low and Middle Income Tax Offset, commonly referred to as LMITO, is a tax offset that is available to eligible taxpayers. This tax offset is in addition to the normal tax offsets and deductions that are available. This was introduced by the government in a bid to help taxpayers deal with the COVID-19 pandemic.
A tax offset, in definition, refers to a reduction in the total amount of tax payable. There is an offset amount, which is defined to reduce the tax amount to be paid. It is important to note that the tax payable can only be reduced to zero.
What you have been seeing in some media platforms as new pay cuts are actually the LMITO, which has been extended. You should also note that any excess offset amount is not refundable.
How the Low and Middle Income Tax Offset is Applied
In the 2021/22 financial year, the tax offset is up to $1080. Initially, the tax offset amount was introduced to a maximum of $540. However, in 2020, it was pushed to $1,080 and was set to end on 30th June 2021. Fortunately, the Federal Government has extended it for another year.
This is great news for the over 10 million Australians that were estimated to benefit from the tax offset in the 2020/21 financial year.
The LMITO is available for singles, couples (including de-facto and same-sex couples), and single parents.
How Much Tax Offset Will I Get?
The amount of tax offset that you will get is dependent on your taxable income. Any Australian resident with an income of up to $126,000 is eligible for the LMITO. As we’ve mentioned, the amount of the tax cut varies, depending on your taxable income.
Here are the amounts you are set to receive:
- $90,000 to $126,000 offset tax of $1,080 minus 3% of the amount exceeding $90,000
- $48,000 to $90,000 offset tax of $1,080
- $37,000 to $48,000 offset tax of $255 plus 7.5% of amount exceeding $37,000
- Less than $37,000 the offset tax is $255
It is worth noting that offset tax is payable per year. Contrary to some misleading media reports, you will not receive the excess amount above the tax cut. The LMITO will only reduce your tax payable to nil.
The Low and Middle Income Tax Offset should not be confused with a tax refund. A tax refund is only paid if the total tax you have paid for the financial year is more than your total liability. If this is not the case, you will not get a refund.
How to Claim LMITO
The good news is that you are not required to do anything complicated. You will compute your tax as usual and our team of tax experts will include the applicable tax cuts.
Contact your local tax agent, Accurate Business & Accounting Services, and we will be glad to help you with LMITO and all other tax-related issues.