With the Federal Budget on Tuesday, 09 May and end of financial year looming, cost-of-living pressures (or relief) and income tax are sure to be in the spotlight.

The Federal Government has already stated that the Low and Middle Income Tax Offset (LMITO) will come to an end as at the 2021-2022 income year. That means this year's tax refund (2022-2023) will potentially be quite different for anyone earning up to $126,000 - with the automatic tax offset of up to $1,500 vanishing.

That offset (which translated into a tax refund for many taxpayers) provided some relief against cost-of-living pressures - including increased mortgage rates or rent, food, electricity and rising petrol costs.

The end of LMITO effectively means costs will rise for more than 10 million middle-income Australians, with increased tax liabilities or lower than expected tax refunds on the way.

How did LMITO work?

LMITO reduced the tax payable on your taxable income (your total income for the year, less any deductions you claim).

In your 2021-2022 tax return, LMITO was applied automatically to your tax return if you were in the eligible income bracket. If your taxable income was $18,201 or more, the Australian Tax Office worked out how much tax you needed to pay and then deducted the applicable Low and Middle Income Tax Offset amount.

Importantly, the Low and Middle Income Tax Offset was not a cash refund. If you didn’t pay any tax during the year, you didn’t get the Low and Middle Income Tax Offset.

In addition, offsets are not used to reduce your Medicare Levy & Medicare Levy surcharge (if there is any). The LMITO did not affect this part of your tax return.

Low Income Tax Offset

While the LMITO will not be available for the current 2022-2023 year, the Low Income Tax Offset (LITO) is expected to continue – pending any further Government rulings or changes. This offset will automatically be applied by the ATO after you lodge your 2022-2023 tax return.

The amount of the Low Income Tax Offset (LITO) you receive will depend on your taxable income. If your taxable income is:

• $37,500 or less, you will get the maximum offset of $700.
• between $37,501 and $45,000, you will get $700, less 5 cents for every $1 above $37,500.
• between $45,001 and $66,667, you will get $325, less 1.5 cents for every $1 above $45,000.

Learn more

If we want to do something about the size of your 2022-2023 tax refund, now is the time. Consulting with one of our Accounting Advisers can be very helpful in the lead-up to end of financial year, particularly regarding any offsets or deductions you may be eligible for.

Contact us here to start a conversation today.