Before understanding low-income tax offsets and low and middle-income tax offsets, it is essential to first understand tax offsets. The blog will cover each aspect related to tax offset. Let’s dive right in:

What is a Tax Offset?

A tax offset is also called a tax rebate, and it reduces the tax you pay on your taxable income. The tax offset amount you get is based on:

  • your taxable income
  • the tax amount you need to pay.

You don’t receive any tax offset if you don’t have any tax to pay. Most tax offsets can’t be refunded, which means if your tax is below zero, then they can’t reduce. However, some are refundable. When you file a tax return, the ATO works out some tax offsets automatically.

Eligibility for the Tax Offsets

If you earn up to $66,667, then you may qualify for the low-income tax offset only from 1 July 2022. Between 2018-19 and 2021-22, you could qualify to get one or both of the:

  • low-income tax offset – if your earning is up to $66,667
  • low and middle-income tax offset – if your earning is up to $126,000.

LMITO ended on June 30, 2022. The 2021–2022 income year will be your final opportunity to get it. To qualify:

  • for tax purposes, you must be an Australian resident
  • pay tax on your taxable income
  • have a taxable income less than certain income thresholds.

Low-Income Tax Offsets (LITO)

When it comes to tax offsets in Australia, there are two important tax offsets to understand, i.e. the low-income tax offset (LITO) and the low and middle-income tax offset (LMITO). The LITO amount you receive is based on your taxable income. Here’s how it works:

  • If your taxable income is $37,500 or less, you will receive the maximum offset of $700.
  • If your taxable income falls between $37,501 and $45,000, the offset amount is calculated as $700 minus five cents for every $1 above $37,500.
  • The offset amount is calculated as $325 minus 1.5 cents for every $1 above $45,000 if your taxable income falls between $45,001 and $66,667. The LMITO was available for 2018 to 19 to 2021 to 22 income years. It provided additional tax relief for eligible individuals in addition to the LITO.

Low and Middle-Income Tax Offset (LMITO)

If your taxable income is less than $126,000, you may be able to receive LMITO. For tax purposes, you also need to be an Australian resident. If your taxable income is $126,000 or more, then you will not receive it.

  • LMITO Amounts 2021-22 Income Year

For the 2021 to 22 income year, the LMITO was increased by $420 as a one-off cost of living tax offset, the base amount became $675 and the full amount reached $1500.

  • LMITO will not be available from 2022-23 Income Year Onwards

However, it’s important to note that the LMITO ended on 30 June 2022. It is not available for the 2022 to 23 income year and subsequent years. As a result of the changes, your tax return outcome for the current income year may be different. You might receive a lower refund compared to when the LMITO was available or you may even receive a tax bill.

  • LMITO Amounts for 2018-19 to 2020-21 Income Years

The LMITO amount, which ranges from $255 to $1,080, remains the same for the 2018-19, 2019-20, and 2020-21 income years. Your circumstances, including your taxable income and the total amount of tax you have paid throughout the income year, will determine how much of an offset you will receive. The LMITO is being phased out after the 2021–22 income year, it won’t be offered in subsequent income years. The amount of LMITO you may obtain is displayed in the tables below. Your taxable income and the income year will determine this.

If you live in Australia, make sure to know the latest updates on taxes. Although it might be difficult for you to stay in compliance with tax rules and regulations, accountants can help you. To stay up to date with tax matters and for specific guidance regarding your financial situation, you can reach Reliable Melbourne Accountants.