The Government announced last Tuesday during the Budget that a one off increase to the low and middle-income tax offset (LMITO) to raise it from $1,080 to $1,500 for the 2021-22 financial year
This means that you will likely be receiving an increase of $420 to the offset, if you fall into an eligible tax bracket.
But What s the LMITO?
The tax offset allows low and middle-income earners to reduce the amount of tax that they may otherwise be required to pay, but only in such a way that it lowers their tax bill. It cannot be used to generate a tax refund or to pay your Medicare levy, however.
A tax offset is different from a tax deduction. Though both reduce the amount of tax you have to pay, tax deductions reduce your taxable income (such as through work expenses). A tax offset is then deducted from your tax liability (what you owe in total).
Depending on your income, you may be eligible for a tax offset of up to $1,500 this financial year as a single, and up to $3000 for eligible dual-income households. The LMITO amount will be used to offset (or reduce) the tax you need to pay on your taxable income.
The amount of offset received depends on your circumstances, such as your taxable income and how much tax you have paid, but it is not a ‘bonus payment’.
Am I Eligible?
Currently, the LMITO is available to eligible taxpayers who are earning less than $126,000. This can be broken down further into how much tax relief (including the LMITO offset) you might receive according to the following income brackets:
- Up to $37,000 – Up to $675
- $37,001 to $48,000 – $675 to $1,500
- $48,001 to $90,000 – $1,500
- $90,001 to $125,999 – $420 to $1,500
Do I Have To Do Anything?
The beauty of the offset is that it takes into account your income earned for the financial year (in this case, 2021-22) and applies it automatically. The Australian Tax Office (ATO) will work out whether you are eligible for any tax offsets when it assesses your income tax return on lodgement.
But you can always prepare for your income tax return prior to the end of the financial year. Working out what you may be looking to claim, getting the records in order and finding out what you might be eligible for are excellent ways you can get ready for the coming tax season.
If you have any further questions about the LMITO, you can also consult with us.