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How to Get the Low and Middle Income Tax Offset

How to Get the Low and Middle Income Tax Offset
Find out if you qualify for the Low and Middle Income Tax Offset this end of financial year.

If you haven’t been living under a rock, you will have likely heard of the Low and Middle Income Tax Offset (LMITO). It has now become law, and what it essentially means is that you may be eligible to receive $1,080. However, this depends entirely on your income. So

LMITO was created to help low and middle-income tax earners to reduce the amount of tax that they pay. It can only be used to lower your tax bill because it is a tax offset. This also means that it can’t be used to generate a tax refund or pay your Medicare levy. Let’s dive in and learn a little more about it and how to get it.

What is the Low and Middle Income Tax Offset?

LMITO was actually temporary when it first came out. Canstar says ‘The Low and Middle Income Tax Offset was originally introduced as part of the Australian Government’s Personal Income Tax Plan in the 2018 Budget’. It was for the four financial years between 1 July 2018 and 30 June 2022. This was set to be stage 1 of the coalition governments Personal Income Tax Plan. It was then that stage two was decided. 

Stage 2 was due to come into effect from 1 July 2022. It would set the Low and Middle Income Tax Offset to increase. On top of that, the 32.5% tax bracket would be expanded from incomes up to $90,000 to incomes up to $120,000. This would then essentially replace the need for LMITO.

However, in 2020, the government announced that they would bring forward stage 2. They then also announced that the Low and Middle Income Tax Offset would be extended for the 2020/21 financial year.

tax offset

Who is eligible for the low and middle tax offset?

To know whether or not you are eligible, you will need to assess your taxable income. If your taxable income is equal to or below $126,000, you will be eligible for some LMITO. There is absolutely no need to apply. The ATO will work out if you’re eligible or not when they assess your tax return.

It is said that around 4.5million Australian taxpayers will be eligible for the full $1,080/ However, another 5.6 million will receive a partial tax offset. The LMITO:

  • Is not allowed to be used to reduce tax payable on unearned income of minors
  • Does not have to be applied before other non-refundable tax offsets
  • Cannot be carried forward or transferred
  • Is not refundable

The bottom line is that you do not have to apply, it will be worked out for you.

The Spouse Contributions Tax Offset

Whether husband, wife, or de facto, if your spouse is earning somewhere between 37,000 and $40,000 or not even working at the moment, there is a large chance that they are accumulating very little or no super at all to fund their retirement.

There is a way to help them by putting money into their super. If you do this, you may be eligible for a Spouse Contributions Tax Offset of up to $540 depending on the eligibility requirements. This is very helpful to know as it is a piece of information that isn’t often shared.

low to middle tax offset

The Low Income Super Tax Offset

You may be eligible for a Low Income Super Tax Offset (LISTO) if you earn up to $37,000 a year. You could pocket around $500 per year for this. To get it, you do not have to do anything. You only need to make sure your super fund has your tax file number.

It is then that the ATO will work out whether or not you’re eligible. From then, you will have the money paid into your super account. Essentially, the LISTO refunds the tax that low-income earners have to pay on their before-tax super contributions.

What if I am not eligible for the Low and Middle Income Tax Offset?

If you’re not eligible for the low and middle tax offset then it isn’t the end of the world. Luckily, there is good news for you.

The government has recently made many changes to the income tax rates applied to taxable incomes. This means that there has been a significant reduction in personal income tax rates. This can help many people if they’re not eligible for the Low and Middle Income Tax Offset. Though, if you’re in need of money and not eligible, a personal loan can help.

tax bonus

How to spend it

Nobody can tell you how to spend your money. However, statistics suggest that 50% of gen z are planning to save the extra income from tax offset, while 77% of boomers are planning on spending it. The smartest way to use it is to pay off debt, that is obvious. It may not be the most popular choice, but it is definitely recommended.

Contributing even the smallest amount of money can help to balance your debt out. This is a positive way to use the offset. Spending it on non-essentials isn’t a good idea. But if you do need essential groceries or some repair work on your house, go ahead.

Do you need help?

If you’re struggling with your finances, don’t worry, there is help available to you. The Australian Lending Centre has a wide array of finance options available. You can very quickly find the help you’re after. The Australian Lending Centre has been helping Aussies with their finances for over 25 years.

Contact the Australian Lending Centre today and say goodbye to any financial worries. 

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What Is The Low And Middle Income Tax Offset (LMITO)?

lady saving money after receiving her low to middle income tax offset||Future changes to the low income tax offset||||||||||

If you have lodged, or are yet to lodge your tax return you may, you may be happy to know that your tax return could be $1,080 bigger. This bundle of joy comes in the form of the low and middle-income tax offset, which will be handed out to Australian taxpayers earning up to $126,000 a year.

What is the low and middle tax offset?

In the 2019-2020 Federal budget, the Coalition Government announced its intention to revise the Personal Income Tax Plan. The proposal has now passed Parliament and has started to roll out across this year’s tax returns.

The low and middle-income tax offset is designed to help Australians lower the amount of tax they have to pay. As an offset, it will directly reduce the amount of tax payable. Unfortunately, the LMITO will not reduce the Medicare Levy for taxpayers, but it will reward over 70% percent of hard-working Australians with some extra cash.

Are you eligible for LMITO?

With approximately 650,000 Australians lodging their tax return in the first week of July, it is clear that many are already rushing to claim the tax offset. The ATO also estimates that 4.5 million Australians will be eligible to claim the full LMITO of $1,080, with another 5.6 million receiving partial payment. Whether you are eligible is entirely up to your taxable income.

LMITO taxable income thresholds

The following thresholds apply for the 2018/2019 financial year

alc table 1 100719

Example: Oscar

Over the 2018/2019 financial year, Oscar will earn a taxable income of $70,000.

Oscar will receive the full refund of $1,080.

Example: Shannon

Shannon is a paralegal working at a law firm in the CBD. Her taxable income for the 2018/2019 financial year is $47,000. Her LMITO will be calculated as follows;

$255 + (7.5% x ($47,000 – $37,000))

= $255 + (7.5% x $10,000)

$255 + $750

= $1,005

Shannon will be entitled to receive a refund of $1,005

Example: Jason

This financial year Jason will earn a taxable income of $108,000. His LMITO will be calculated as follows;

$1,080 – (3% x ($108,000 – $90000))

= $1,080 – (3% x $18,000)

$1,080 – $540

= $540

LMITO =$540

How do I get my LMITO?

If you are eligible for the tax offset, the refund will automatically reflect on your tax refund. The money will be deposited into your nominated bank account. According to the ATO, you do not need to request an amendment.

What’s next?

The government’s tax reform is based around two more stages of stage reform, beginning in 2022-23 and the final reform in 2024-25.

Low Income Tax Offset: 2022/2023

Future changes to the low income tax offset

Some will benefit more than others. High-income earners will benefit as they will receive a larger tax cut. For example, in the third stage of the government’s tax plans, a high-income earner receiving $20, 0000 may receive an offset of $11,640.