10 million Australians to get extra $420 tax relief
Amidst covid, coercion and conflict, the cost of living has been rising in Australia in 2022. Especially, lower and middle income groups have been at the receiving end of inflation and stagnant job growth rate. However, keeping in mind the worsening global economic outlook, the Australian government offered a huge tax relief in a pre-budget announcement.
Tax Benefits Extended
The Australian government decided to extend the income tax offset benefits for the middle and lower income bracket taxpayers for 2021-22. Low and Middle Income Tax Offset or LMITO, as it is famously known, is a temporary tax benefit extended by the government to the taxpayers earning below $126,000 a year.
LMITO was introduced four years ago to help citizens tackle the covid pandemic. This is the third extension offered by the government in 2022. The eligible taxpayers, who currently receive between $255 and $1,080 as tax relief, will have between $675 and $1,500 more in their pockets due to new changes announced by the government.
What is LMITO?
We may have heard this term time and again in the last four years, but many Australians are confused about it. As the Australian Tax Office suggests, LMITO is a direct reduction of the fixed amount from your payable tax for the given financial year.
It directly reduces the amount of tax you pay (or tax payable) based on your taxable income in the given financial year. Let us put this in simple words; tax offset means tax rebate. A taxpayer doesn’t need to claim this benefit, and ATO will calculate your benefits once you lodge the income tax return.
How does LMITO work?
Initially, LMITO was introduced as an offset of $540 in the first stage of the government’s personal income tax plan. Later in 2020, the offset amount was extended to $1080 in the second stage. During the recent extension, it has been increased to $1500 for the assessment year 2021-2022.
If you are an eligible taxpayer under LMITO, you will receive a tax rebate based on your income.
If your taxable income is $45,000 for 2021-22, you are entitled to a $255 initial LMITO. In addition, you will receive a 7.5% tax relief on the amount above $37,000, that is $600. Hence, you will receive a tax rebate worth $855 for the current financial year.
Calculation:
$255 + (7.5% x ($45,000 – $37,000))
= $255 + (7.5% x $8,000)
= $255 + $600
= $855
The tax benefits are based on your total taxable income, as follows:
- Less than $37,000 per year = $255 + $420
- Between $37,000 and $48,000 = $255 + 7.5% of the amount over $37,000 + $420
- Earn between $48,000 and $90,000 = $1080 + $420
- Between $90,000 and $126,000 = $1080 less 3% of the amount over $90,000 + $420
Does LMITO replace the LITO?
LMITO does not replace Low Income Tax Offset. The tax benefits under the LITO will continue to be applied. The maximum amount under LITO was increased from $445 to $700 on July 01, 2020.
LMITO does not offer actual tax refund
Since LMITO is a direct tax deduction from your payable tax, it doesn’t offer any refund in your bank account. However, if your payable tax amount is lower than the LMITO benefits, it squares off your tax liability for the year.
The difference between Tax Offset and Tax Deduction
The tax offset under LMITO applies to your payable tax amount, while tax deduction usually applies to taxable income. Therefore, while a tax offset reduces your tax amount, a tax deduction reduces your taxable income.
Will LMITO be applicable for 2022-23?
As the government of Australia explained while announcing the recent offset extension, the LMITO will not be applicable for the following year. However, another extension to LMITO can not be ruled out, given the global economic turmoil.
In case of more queries, you can always get in touch with us for more clarification on LMITO, LITO, or your tax returns.
