Low and Middle Income Tax Offset Clarification

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As many of you are aware there was recent tax legislation that passed through Parliament that has resulted in the ‘Low and Middle Income Tax Offset’  –  commonly referred to as LMITO.

Taxpayers have been expecting this small cash injection from the Australian Taxation Office which has been inundated with calls regarding this money, and where it is.

To answer a lot of confusion, this does not mean everyone automatically gets $1,080 back from the Government as soon as they lodge their income tax return.

A low and middle income tax offset (LMITO), was introduced in the 2018-19 Federal Budget and passing Parliament in early 2019.  Prior to the passing through parliament LMITO sat at $530, however with recent changes it has now increased to a maximum of $1,080.

A portion of the tax benefit/offset is available to those with a taxable income below $126,000.

The first thing to remember is that this is a tax offset; you need to owe tax to offset the tax. Tax is owed if you earn over the marginal tax rate thresholds, that being $18,200. And, if you owe tax, the offset will be first used to reduce the tax you owe.

It is not a cash back – as mentioned before, the ATO has received multiple queries/complaints from taxpayers not fully understanding the process of LMITO and if further clarification is required beyond this article the ATO goes into depth on its website.

The offset is available for the 2018-19, 2019-20, 2020-21 and 2021-22 income years. So, if you are eligible to receive the offset, it applies to the taxable income you earned last financial year (2018-19) and you will receive any offset owing once you have lodged your tax return, this is calculated by the ATO so nothing is required on the taxpayer’s side of things.

Taxable Income Low and Middle Income Tax Offset (LMITO)
$37,000 or below $255
$37,001 – $48,000 $255 plus 7.5% of taxable income exceeding
$48,001 – $90,000 $1,080
$90,001 – $126,000 $1,080 less 3% of your taxable income exceeding

For example if you earned taxable income in 2018-19 of:

  • Less than $21,885, while you have an entitlement to LMITO of $255,  you do not pay personal income tax and therefore cannot utilise the offset.
  • $45,000, you will receive a tax reduction of $855 ($255 plus 7.5% on every dollar between $37,000 and $45,000, in this case $8,000).  You may also be eligible for the low income tax offset (LITO), see below.
  • $89,000, you will receive a tax reduction of $1,080.
  • $125,000 you will receive a tax reduction of $30 ($1,080 less 3% on every dollar between $90,000 and $125,000, in this case $35,000)

The LMITO is also an addition to the existing low income tax offset (LITO) with some taxpayers eligible to receive both offsets. The LITO is available to those with taxable income of less than $66,667. The maximum offset is $445 for those with taxable incomes of $37,000 or less. Any amount you earn above $37,000 up to the threshold of $66,667 reduces the offset by 1.5%.

Taxable Income Low Income Tax Offset (LITO)
$37,000 or below $445
$37,001 – $66,667 $445 less 1.5% of taxable income exceeding $37,000
Above $66,667 Nil