In the 2019–20 Federal Budget the Government announced its intention to change and build on the Personal Income Tax Plan, introducing the new low and middle income tax offset (LMITO). 

If you are a low-income earner and you are an Australian resident for income tax purposes, you may be eligible for both the:

• low income tax offset
• low and middle income tax offset

Tax offsets reduce the amount of tax you pay on your taxable income. They are non-refundable offsets, so the following applies:

• any unused offset amount can’t be refunded
• it can’t reduce your Medicare levy

Low Income Tax Offset (LITO)

If your taxable income is less than $66,667, you will be eligible for the low-income tax offset (LITO).

The maximum tax offset of $445 applies if your taxable income is $37,000 or less. This amount is reduced by 1.5 cents for each dollar over $37,000.

Low and Middle Income Tax Offset (LMITO)

If your taxable income is less than $126,000, you will be eligible for some of the low and middle income tax offset. LMITO will be available for the 2018–19, 2019–20, 2020–21 and 2021–22 income years and is in addition to the low-income tax offset.

The base offset amount is $255 per annum and the maximum offset is $1080 per annum.  From the 2018–19 income year, changes to the existing arrangement will be:

• Base amount increases from $200 to $255 per annum
• Maximum amount increases from $530 to $1,080 per annum

The amount you are entitled to will depend on your individual circumstances (your income level and how much tax you have paid throughout the year). But it is important to note that it does not mean that you will get an extra $1,080 in your tax return.

What does this mean for you?

• If your taxable income is $37,000 or below, you can now receive a LMITO of up to $255
• If your taxable income is over $37,000 but below $48,000 you can now receive $255, plus an amount equal to 7.5% of the maximum offset of $1,080
• If your taxable income is over $48,000 but below $90,000, you are eligible for the maximum LMITO of $1,080
• If your taxable income is over $90,000 but no more than $126,000, you are now eligible for a LMITO of $1,080, less an amount equal to 3% of the excess.

For example, if your taxable income is more than $48,000 but less than $90,000, you will be eligible for a LMITO of $1,080.  However, if your taxable income is $103,000, as your taxable income exceeds $90,000, you will be entitled to a LMITOof $690 (being $1080 less 3% of the difference between $103,000 and $90,000).

Further, you don’t have to do anything to claim the offsets – we will work them out when we lodge your tax return.

If you have any questions or need advice and clarity specific to your business, feel free to contact Semmens & Co on 03 8320 0320 for a free consultation.