The Low and Middle-Income Tax Offset (LMITO) just recently ended. If you noticed that your tax return is small this year, here’s the answer to why. With the LMITO gone, many Australians are set to receive a much smaller tax refund than the previous years. Expect about $1,000 in reduction or even more.
What is the LMITO?
The Low and Middle-Income Tax Offset was introduced in the 2018-19 tax year. Essentially, it is a reduction of tax payables, a gift from the Australian Government to low and middle-income earners. LMITO also helped balance the tax bracket issue affecting the country, where workers have been forced to pay higher taxes than their standard of living could manage. For the 2021-22 tax year, the LMITO value increased with the “cost of living tax offset.”
How the LMITO Helped Australians During Tax Time
From 2018 to 2022, numerous taxpayers, particularly those who earn less than $126,000 each year, experienced the benefits of LMITO. It should be noted that the offset was not given to Australians as a lump sum or a cash payment. Instead, it is in the form of an offset, meaning a reduction in the tax amount you must pay at the end of the financial year. If you paid your taxes during the mentioned years, the LMITO most likely boosted your tax refund by a lot.
The offset starts at $255 for $0 to $37,000 taxable income. Anything up to $48,000 resulted in an offset of $255 plus 7.5 cents for each dollar over $37,000. The offset is limited to a $1,080 maximum. The same offset is applied to taxable incomes from $48,001 to $90,000. Anything above $90,000 up to $126,000 entitles you to a $1,080 reduction minus three cents for each dollar above the mentioned minimum amount.
Even better, taxpayers who earned less than $126,000 were given an additional $420 offset during the 2021-22 financial year.
Why It’s Being Axed
Like many good things in life, the LMITO has finally reached its end. Whilst this tax measure was primarily introduced as temporary relief for low and middle-income earners, many Australians benefitting from the reduction were disappointed, to say the least. The reason behind the abolishment of LMITO is multifaceted. First, this decision reflects a switching of gears in the government’s priorities. New stimulus measures may be introduced soon, along with other forms of support towards the economy.
Another possible reason is to remain within the budget. The cost of LMITO may be more than the government could handle, despite the benefits it has provided to the citizens. The funds for the tax cuts may also be shifted to other budgets or programs.
Some critics contested the fairness of the scheme, arguing that LMITO did not truly provide real benefits to low and middle-income earners. Rather, it gave higher income earners more gains because of the flat offset amount used in the measure instead of the percentage-based reduction.
Finally, abolishing LMITO may be useful in simplifying the Australian tax system. With the offset gone, the government can implement a tax code that allows taxpayers to understand and lodge their taxes much easier.
The Impact of the LMITO Being Cut Off
Interest rates are still on an upward trajectory. Fuel prices are about to break record highs, and electricity, gas, and basic foods are not getting affordable either. As a result, many people rely on their tax deductions to get that much-needed relief. That was what LMITO once served to numerous taxpayers since the first financial year it was made available. As the government implements a major change to the tax system, tax refunds are bound to go down come tax time.
The tax offset that gave taxpayers a tax break of up to $1,500 expired on 30 June 2022. However, you will not cotton on to this fact until they lodge their income tax return this year and notice the reduced size of refund compared to the previous years.
Quick Tips to Get Some More Out of Your Tax Returns
The end of LMITO does not mean you cannot get tax reductions. Here are some ways to counterbalance the drop in your tax refund:
- Make sure you claim all your tax deductions.
- Keep proof of your expenses so the ATO cannot refuse your claims. In some instances, the ATO can cancel your deductions if you do not have documentation for the expenses.
- If you work two jobs, do not claim the tax-free threshold on both jobs. Instead, claim the one from your higher-income earning job. If you are uncertain, do not hesitate to talk to your employer.
- Existing ATO debts will be deducted from your refund. Rather than giving your refund in full, the ATO will subtract the amount you owe before you get the rest. The best solution is to pay your outstanding amount as quickly as possible.
TaxReturn.com.au is your best resource for finding the deductions you are entitled to. We also have tax experts who can help make it easier to claim those deductions. Reach out to our friendly team if you need clarification on your tax refund this year. Contact us today!
