Low and Middle Income Tax Offset 2021-22 – Are you eligible?
24 May 2022
We share more about the Low and Middle Income Tax Offset or LMITO, including the ‘one-off cost-of-living tax offset’ that will give an extra $420 tax offset to many Australians from July 1 this year.
As part of the 2022 federal Budget, former Treasurer Josh Frydenberg announced individuals already eligible for the Low and Middle Income Tax Offset, known as the LMITO, will receive up to $1,500 and couples up to $3,000 as a tax offset this financial year.
More than 10 million low-and middle-income earners (earning up to $126,000 annually) will be eligible, but there will be no further extension of the LMITO – meaning 2021/22 will be the final financial year low- and middle-income earners will get this benefit.
With cost-of-living pressures high on the minds of many Aussies, Canstar has asked chartered accountant Davie Mach from Box Advisory Services to explain how the LMITO works, who may be eligible and for how much this tax time.
What is the Low and Middle Income Tax Offset?
As the name suggests, the Low and Middle Income Tax Offset helps low- and middle-income earners to reduce the amount of tax they pay.
Are there different Low and Middle Income Tax Offsets?
If you pay tax, at the time of writing you can claim the:
- Low Income Tax Offset, if your taxable income is less than $66,667
- Low and Middle Income Tax Offset, if your taxable income is less than $126,000.
How is the Low Income Tax Offset different to the Low and Middle Income Tax Offset?
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. Initially, stage one of this Plan’s implementation was supposed to run between 1 July 2018 and 30 June 2022. After that, stage two would see it as a final, rather than just a temporary, measure. The idea behind the stage two implementation was to increase the threshold for the Low Income Offset to include individuals that earned an annual income of up to $120,000. There would then be no need for a Low and Middle Income Offset. The change would simply adjust the existing Low Income Tax Offset.
However, given the economic downturn caused by the coronavirus pandemic, the Government announced that it would bring forward stage two of the plan, to take effect from 1 July, 2020, instead of 1 July, 2022. Rather than removing the Low and Middle Income Tax Offset simultaneously, the Government also announced that it would be extended for the 2020/21 financial year. The tax offset was further extended in the 2021 Budget for the 2021/22 financial year. An additional one-off $420 cost-of-living tax offset was then added in the 2022 Budget to help Australians meet cost-of-living pressures.
This means that from 1 July, 2018, to 30 June, 2022, you may be eligible for both tax offsets.
The Australian Taxation Office (ATO) will work out if you’re eligible for either or both of these offsets when it assesses your income tax return, so there’s no need to do anything extra.
Who is eligible for the Low and Middle Income Tax Offset?
You can work out if you’re eligible to claim the Low and Middle-Income Tax Offset based on your annual taxable income. You’ll be eligible for at least a partial offset if your taxable income is $126,000 or less.
How much is the Low and Middle Income Tax Offset?
The following taxable income thresholds will apply to the Low and Middle Income Tax Offset for the 2021/22 financial year:
| Taxable income amount |
Low And Middle Income Tax Offset |
|---|---|
| $37,000 or less | Up to $675 |
| More than $37,000 but less than $48,000 |
$675 plus 7.5% of the amount above $37,000, up to $1,500 |
| More than $48,000 but less than $90,000 |
$1,500 |
| More than $90,000 but less than $126,000 |
$1,500 minus 3% of the amount above $90,000 |
Source: Australian Taxation Office and Australian Government.
How do I apply for the Low and Middle Income Tax Offset?
You don’t need to apply for the offset, as the ATO will apply it automatically for you once you lodge your tax return.
How does the Low and Middle Income Tax Offset affect the tax I pay?
The tax offset amount you can claim based on the taxable income threshold will reduce the amount of tax you’ll have to pay to the ATO.
Hypothetical example:
Marsha earns a taxable income of $39,500 for the 2021/22 financial year.
As Marsha earns less than $126,000, she is eligible to receive the low and middle income tax offset, plus the one-off cost-of-living tax offset.
Her tax offset will be calculated according to the relevant taxable income threshold:
$675 + [7.5% x ($39,500 – $37,000)]
= $675 + (7.5% x $2,500)
= $675 + $187.50
= $862.50
The ATO would, therefore, reduce the income tax Marsha has to pay by $862.50.
It’s worth noting that the Low and Middle Income Tax Offset is a non-refundable tax offset and can only lower the amount of tax you’re liable to pay to zero at best. Any unused offset amount can’t be refunded.
What’s more, it can only reduce tax owing. This means it can’t be used to reduce your Medicare levy, which is generally 2% of your taxable income, or Medicare Levy Surcharge (where one might apply).
Key takeaways
If you’re a low or middle-income earner, the ATO affords you two possible tax offsets:
- the Low Income Tax Offset if your taxable income is less than $66,667
- the Low and Middle-Income Tax Offset if your taxable income is less than $126,000
For the 2021/22 financial year, taxpayers could be eligible to have both offsets applied to their taxable income.
There is no extra paperwork needed, as the ATO will simply calculate if you’re eligible and then apply the offsets you qualify for to reduce your taxable income.
You should take note, however, that the Low and Middle Income Offset:
- is a non-refundable tax offset, which means you won’t receive a refund from the ATO, and it can only reduce your tax payable to zero – any unused offset amount can’t be refunded
- is only applicable to people who earn below relevant income thresholds
You should get in touch with a qualified tax agent or accountant if you’re feeling unsure about whether you are eligible for the tax offset or not.
Additional reporting for the 2022 federal Budget by Sean Callery.
Image source: Mattz90/Shutterstock.com
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This article was reviewed by our Sub Editor Jacqueline Belesky before it was updated, as part of our fact-checking process.
