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We have received questions from our taxpayers wanting to know the recent tax relief of $1080. Although the immediate relief has been introduced in the 2019 Federal Budget, this article will explain in more detail aiming to provide you with a better understanding about this tax cuts. Firstly, tax offset of $1080 will not automatically come to you when you lodge your tax return. So what is the Low and Middle Income Tax Offset?

From 1st July 2018

The new LMITO was firstly introduced by the federal government as part of 2018-19 Federal Budget, which helps low and middle income earners (taxable income is at or below $125,333) lowers the amount of tax they need to pay. The new LMITO increases from a maximum amount of $530 to $1080 and the base amount increases from $200 to $255 per annum. The maximum threshold increased from $125,333 to $126,000 to ensure tax relief will be delivered to more taxpayers.

First thing to remember is that the LMITO is a tax offset. It can only be used to lower the amount of tax that you owe and not to generate a tax refund. ATO points out on their website:” it doesn’t mean you will automatically get an extra $1080 in your tax return.

The new LMITO threshold is available for the 2018/2019, 2019/2020, 2020/2021 income years. If you are entitled to LMITO, it will automatically apply on your 2018/19 tax return. Before you lodge your tax return, check if LIMTO is visible on your tax return lodgement. See the diagram below to check your entitlement:

Taxable income* Minimum Tax Offset Maximum Tax Offset
<$37,000 $255 $255
>$37,000 – <$48,000** $255 $1,080
>$48,000 – <$90,000 $1,080 $1,080
>$90,000 – <$126,000*** $0 $1,080
$126,000+ $0 $0

* Your taxable income is your assessable income minus your allowable deductions

**LMITO is $255 plus 7.5% of the portion of your taxable income that exceeds $37,000

***LMITO is $1080 less 3% of the portion of your taxable income that exceeds $90,000, up to Nil

For example, if you earned taxable income in 2018-19 of:

  • Less than $21,885, while you have an entitlement to LMITO of $255. Your taxable income is under the tax-free threshold, you don’t have any tax to pay. Therefore, you cannot utilise the offset.
  • $45,000, you will receive a the LMITO of $855, ($255 plus 7.5% of the portion of your taxable income that exceeds $37,000, in this case $8,000). You may also be eligible for the LITO, see below.
  • $85,000, you are entitled to the full $1080 LIMITO.

The LMITO applies in addition to the existing Low Income Tax Offset (LITO). Taxpayer whose taxable income is at or below $66,667 will receive this benefit. The maximum LITO $445 applies to those with taxable income at or below $37,000. For taxpayers whose taxable income exceeds $37,000 but is not more than $66,667, the entitlement is reduced by 1.5 cents for each dollar over $37,000. Similarly, LITO can only be used to lower your tax paid and not a cash bonus given by ATO if you do not owe money to ATO.

From 1 July 2022

New changes come into effect from 1 July 2022

  • Income tax rate thresholds change —— the upper income threshold of the 19 per cent tax bracket increases from $37,000 to $45,000 with effect from 1 July 2022, intending to benefit all taxpayers with a taxable income over $18,200. The change will apply to resident taxpayers and working holiday makers.
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  • The LITO increases —— for taxpayer with a taxable income at or below $66,667, the maximum LITO will be increased to $700 from current $445. However, the LITO reduces quicker than it currently applies. The increased LITO will be withdrawn at a rate of 5% every dollar between taxable incomes of $37,500 and $45,000. LITO will then be reduced at a rate of 1.5% every dollar between taxable incomes of $45,000 and $66,667.

These changes assume that Government does not withdraw the income tax changes in their future budget.

From 1 July 2024

From 1 July 2024, the 32.5% marginal tax rate will be reduced to 30%, The number of taxpayers benefit from such tax rate cut will be increased by the top threshold of the middle tax bracket jumped from $12,000 to $200,000. Tax relief applies to resident taxpayers and working holiday makers. Once again, this assumes that no more changes will be delivered to the future federal budget.

If you have any query about the above contents, please do not hesitate to contact Pitt Martin. We are located at the Sydney CBD. Our contact number is 02 92213345 and email connect@pittmartin.com.au.