What you need to know about Low and Middle Income Tax Offset

What is a tax offset?

A tax offset is a reduction of your tax payable by the offset amount.

Contrary to popular belief, you do not receive the amount of the offset entitlement directly as a lump sum.

For example, if you earn $87,000 a year, in the 2021/22 financial year you are eligible for a $1080 tax offset, so your tax payable is reduced from $18,742 to $17662 – effectively providing you with an additional refund of $1080.

What is the Low and Middle Income Offset (LMITO)?

The LMITO is a tax offset of up to $1080. Originally introduced as an offset of $540 in Stage 1 of the Government’s larger Personal Income Tax Plan, Stage 2 which started on 1 July 2020, saw the tax offset increase to $1080.

Since the 2021 Federal Budget, on 11 May 2021, the Government announced the LMITO to be extended once again for the 2021/22 financial year.

Are you eligible?

You are eligible for some LMITO if your income is equal to or below $126,000.

The tax cut you receive depends on your total taxable income for the year, as follows:

It’s important to note, if you have an outstanding debt with the ATO, any refund which includes the LMITO may be used to reduce that debt rather than paid to you as a refund. Any HELP/HECS debt remains unaffected by these cuts.

The Low and Middle Tax Offset also:

  • Is not available to reduce tax payable on unearned income of minors (which is taxed at penalty rates)
  • Is non-refundable and cannot be carried forward or transferred
  • Does not have to be applied before other non-refundable tax offsets

One other thing…

The LMITO is not a refund. This means that if you have not paid tax during the year, you cannot receive it.

What do you need to do to claim the 2021/22 tax cuts?

Thankfully you don’t need to work out anything!

There is no need to apply for it, the ATO will work out if you are eligible when they assess your tax return.

If you have any further questions about tax cuts or anything else regarding your tax return, please get in contact with us on 07 4638 5300.

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