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Low and middle income tax offset explained

  • July 22 2021
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Low and middle income tax offset explained

By Zarah Mae Torrazo
July 22 2021

Are you wondering what the low and middle income tax offset is, and whether you are eligible for it? Here’s our quick explainer to help you determine if you qualify. 

Low and middle income tax offset explained

Low and middle income tax offset explained

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  • July 22 2021
  • Share

Are you wondering what the low and middle income tax offset is, and whether you are eligible for it? Here’s our quick explainer to help you determine if you qualify. 

Low and middle income tax offset explained

Tax season is upon us. Are you wondering what the low and middle income tax offset is, and whether you might be eligible for it? 

To help you take steps to potentially lower how much tax you have to pay, we’ve created this basic guide to introduce you to the offset and help you determine whether you’re eligible.  

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

Before we get started, it’s important to note that 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.

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As the name indicates, the LMITO or “Lamington” as it’s colloquially referred to, helps low- and middle-income earners to reduce the amount of tax they pay.

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. 

The LMITO was scheduled to end on 30 June 2021. However, because of the economic downturn caused by the COVID-19 pandemic, the government has decided to extend it. 

On 11 May 2021, Treasurer Josh Frydenberg announced the extension of the LMITO for another year as part of the 2021 federal budget. 

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 (eligible couples will save up to $2,160). Meanwhile, another 5.6 million will get a partial offset amount. 

A few things to remember: the LMITO is not available to reduce tax payable on unearned income of minors (which is taxed at penalty rates), it is non-refundable, and cannot be carried forward or transferred. Moreover, it does not have to be applied before other non-refundable tax offsets. 

Lastly, 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? 

At the time of writing, the taxable income thresholds apply to the low and middle income tax offset as follows:   

  • Taxable income of less than $37,000 per year = $255
  • Taxable income of more than $37,000 but less than $48,000 = $255 plus 7.5 per cent of the amount over $37,000
  • Taxable income of more than $48,000 but less than $90,000 = full $1,080 
  • Taxable 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. 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. 

Can I claim both the low income tax offset (LITO) and the low and middle income tax offset (LMITO)?

From 1 July 2018 to 30 June 2022, Aussie taxpayers may be eligible for both LITO and LMITO. To know if you qualify for LITO, read all about it here. 

Tax season doesn’t have to be complicated. To get all the latest information about proper tax planning, explore nestegg’s informative, easy-to-digest stories and features. 

Low and middle income tax offset explained
Low and middle income tax offset explained
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