Low and middle income tax offset explained

The 2021 Budget threw in a few perks for businesses but the one that around 10 million taxpayers will appreciate, is the decision to continue the tax offset for low and middle income earners.

Are you wondering what the low and middle income tax offset is, and whether you are eligible for it?

What is the low and middle income tax offset (LMITO)?

It is important to note while the media labels the LMITO as a tax cut, it is actually an extension of an existing tax offset. A tax offset is a reduction of your tax payable by the offset amount. It can only reduce tax payable to nil, though – any excess offset is not refundable.

The LMITO was originally introduced as a tax offset with the maximum amount of $540 in Stage 1 of the government’s Personal Income Tax Plan.

The Stage 2, which began on 1 July 2020, saw the tax offset maximum amount increased to $1,080. At this stage, the tax bracket for the offset was expanded to include incomes of up to $120,000 from the previous $90,000 threshold.

Who’s eligible for the LMITO?

Your eligibility for LMITO will depend on your annual taxable income. You are qualified to at least a partial offset if your taxable income lands between $37,001 and $126,000. 

The low and middle income tax offset amount is between $255 and $1,080. The government estimates that around 4.5 million Aussie taxpayers will be eligible for the LMITO of $1,080 

A few things to remember 

• The LMITO is not available to reduce tax payable on unearned income of minors
• It is non-refundable 
• It can not be carried forward or transferred
• It does not have to be applied before non-refundable tax offsets
• The LMITO is not a tax refund. It means that if you have not paid taxes during the year, you are not entitled to receive it. 

How much LMITO can I get this 2021/22 financial year? 

As at August 2021 (offset subject to change) the taxable income thresholds apply to the low and middle income tax offset as follows: 

Taxable Income	Tax offset
Income of less than $37,000 per year	$255
Income of more than $37,000 but less than $48,000	$255 plus 7.5 per cent of the amount over $37,000
Income of more than $48,000 but less than $90,000	$1,080
Income of more than $90,000 but less than $126,000	$1,080 minus 3 per cent of the amount above $90,000

What do I need to do to claim my LMITO? 

Thankfully, you are not required to do anything different at tax time to get your LMITO. If you prepare your own tax return all you need to do is to lodge your tax return as usual. Then, the Australian Taxation Office (ATO) will work out if you’re eligible for the offset when it evaluates your income tax return and handle the rest. If you have a tax agent, they will look after this for you. 

The Money Edge | Bundaberg