LMITO: The low down on the Low & Middle Income Tax Offset

Australian taxpayers earning below a certain amount could be eligible for the Low & Middle Income Tax Offset. Here’s on overview.

As the Australian Taxation Office (ATO) explains, our tax system contains a number of personal tax offsets designed to reduce an individual’s tax burden, including for people on low incomes and those who’ve made specific types of super contributions.

While many of these offsets have been law for some time now, the Low & Middle Income Tax Offset (LMITO) was introduced only last year, in the 2018-19 Federal Budget. It was legislated in an attempt to put more money in the pockets of taxpayers, and subsequently provide a financial boost to both households and the economy. 

Proposed changes to it were then introduced in the 2019-20 Federal Budget in the form of the Treasury Laws Amendment (Tax Relief So Working Australians Keep More Of Their Money) Bill 2019, and were passed by Parliament in July, at the start of the 2019-20 financial year. While the changes were not passed until after the end of the 2018-19 financial year, the ATO has stated that eligible taxpayers will receive the offset as part of their 2018-19 tax return, even if they had lodged it before the changes were passed. 

The LMITO will also be available for the 2019-20, 2020-21, and 2021-22 financial years, and the ATO says it is available in addition to the Low Income Tax Offset (LITO) if you qualify for both offsets. 

Here’s a quick guide to the LMITO, including whether you could be eligible for it, and how much you might get as a result. 

Who is eligible for the Low & Middle Income Tax Offset?

According to the ATO, taxpayers with a taxable income of $126,000 or less are eligible for the Low & Middle Income Tax Offset. The size of the offset you are personally eligible for will depend on your taxable income, but the ATO notes that the LMITO can only reduce your tax payable to $0 – it cannot result in you receiving a tax refund or be used to pay your Medicare Levy

How much is the Low & Middle Income Tax Offset?

According to the ATO, the rates for the Low & Middle Income Tax Offset are as follows:

Taxable income  Maximum size of tax offset
$0-$37,000 $255
$37,001-$48,000 $255 plus 7.5% of the amount in excess of $37,000, up to a maximum total of $1,080
$48,001-$90,000 $1,080
$90,001-$126,000 $1,080 minus 3% of the amount in excess of $90,000

Source: ATO

Will the Low & Middle Income Tax Offset change over time? 

There are currently no plans to change the rates or thresholds for the Low & Middle Income Tax Offset. However, according to the ATO, it will not be available after the 2021-22 financial year – instead, , both the 2022-23 and 2024-25 financial years will see changes to marginal income tax brackets and rates

Changes planned for the 2022-23 financial year

According to the ATO, the following changes will come into effect at the start of the 2022-23 financial year:

  • The upper limit for the 19% personal income tax bracket will increase from $41,000 to $45,000, which will see the marginal tax brackets changing to:
    • 19% for taxable incomes higher than $18,200 but not in excess of $45,000
    • 32.5% for taxable incomes higher than $45,000 but not in excess of $120,000
    • 37% for taxable incomes higher than $120,000 but not in excess of $180,000
    • 45% for taxable incomes higher than $180,000
  • The maximum amount available under the LITO will increase from $645 to $700 
    • The maximum amount of $700 will be available to taxpayers with a taxable income of $37,500 or less
    • Taxpayers with a taxable income of between $37,501 and $45,000 will receive a LITO of $700 minus 5% of the amount in excess of $37,500, down to a minimum of $325
    • Taxpayers with a taxable income of more than $45,000 but not in excess of $66,667 will receive a LITO of $325, minus 1.5% of the amount in excess of $45,000.

Changes planned for the 2024-25 financial year

Finally, the ATO explains that the following changes will come into effect at the start of the 2024-25 financial year:

  • The 32.5% marginal tax rate will be reduced to 30%, and the upper limit for the 30% tax bracket will be increased from $180,000 to $200,000
  • Only taxpayers with a taxable income in excess of $200,000 will have to pay a marginal tax rate of 45%

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