There has been a lot of confusion surrounding recent income tax changes that has led many to believe they will automatically receive an extra $1,080 from the Tax Office this tax time. The ATO has been inundated with enquiry from taxpayers wanting to know where their money is and how to access it, but it’s not that straight forward. What has changed?
From 1 July 2018
A low and middle income tax offset (LMITO) has been introduced to provide a tax benefit to those taxpayers with taxable incomes below $126,000.
The first thing to remember is that this is a tax offset, so you need to owe the tax to be able to offset the tax. It is not a cash back or instant refund – a point the ATO is at pains to point out to many taxpayers enquiring.
The offset applies for a limited time, specifically to 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. The offset will be included as part of your overall tax assessment for the year. The below table summarises the entitlement to the new LMITO.
|$37,000 or less||$255|
|$37,001 to $48,000||$255 plus 7.5% of the portion of your taxable income that exceeds $37,000|
|$48,001 to $90,000||$1,080|
|$90,001 to $126,000||$1,080 less 3% of the portion of your taxable income that exceeds $90,000|
The LMITO is in addition to the existing low income tax offset (LITO). 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%. Once again, the LITO is a tax offset to reduce the amount of tax you pay. If you do not pay personal income tax, you do not receive the offset as a cash refund.
From 1 July 2022
There are two changes that occur from 1 July 2022:
- Income tax rate thresholds change – the top threshold of the 19% personal income tax bracket increases to $45,000 (currently $37,000), effectively providing a tax cut to all taxpayers earning over $18,200. The tax rate change applies to resident taxpayers and working holiday makers
- The low-income tax offset (LITO) increases – for those with taxable income of less than $66,667, the LITO base amount will increase from $445 to $700. However, the LITO will reduce quicker than it currently applies with amounts above $37,500 reducing by 5% for amounts up to $45,000, then 1.5% to $66,667.
It is important to note that these changes assume that the Government does not pare back the income tax changes in a future Budget.
From 1 July 2024
From 1 July 2024, the 32.5% marginal tax rate will reduce to 30% and the number of taxpayers it applies to will increase with the maximum threshold moving from $120,000 to $200,000. The tax rate change applies to resident taxpayers and working holiday makers. Once again, this assumes that this tax rate and threshold change is not amended in a future Federal Budget.