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Guide to Low Income Tax Offset in Australia 

Vincent Nyoike
Vincent Nyoike Tax

Due to the high cost of living, the Australian Government has introduced income tax offset to help low and middle income earners lower their tax payable amount. For instance, on March 29, 2022, the Australian Government announced a one-off $420 tax offset for the 2021/22 financial year. The one-off tax offset increased the maximum offset for LMITO from $1,080 to $1,500. The proposal was announced by Former Treasurer Josh Frydenberg.

Those eligible for low and middle-income tax offset will get up to $1,500 and couples can get up to $3,000 tax offset. Low income and middle income earners can receive one or both Low Income Tax Offset and Low Income and Middle Income Tax Offset.

What is a Tax Offset?

A tax offset is a tax discount that reduces your tax payable amount on your taxable income. In Australia, you can benefit from Low Income Tax Offset (LITO), or Low and Middle Income Tax (LMITO), or both depending on the amount of your income. If you earn less than $18,200, your tax payable amount is zero.

Who is Eligible for a Tax Offset?

To be eligible for low and middle income tax offset, you need to meet the following requirements:

  • Be an Australian resident and taxpayer
  • Pay tax on your taxable income
  • Have a taxable income below a certain threshold

Read also: Working from home tax deductions Australia.

Types of Tax Offsets Australia 

The following are some tax offsets available in Australia. 

  1. Tax offsets for low and middle income earners
  2. Super related tax offsets
  3. Private health insurance tax offset
  4. Seniors and pensioners tax offset

How to Apply for Income Tax Offset

You don’t need to apply for low income tax offset. When you lodge your tax return, the Australian Tax Office (ATO) automatically works out your tax offset. If you meet the above requirements, your tax payable reduces due to the tax offset.

You can either qualify for one or both:

  • Low Income Tax Offset
  • Low and Middle Income Tax Offset 

1. What is Low Income Tax Offset?

Low Income Tax Offset (LITO) is a tax discount that will help low income earners lower their payable tax amount. If you earn between $37,500 and $66,667, you are eligible for Low Income Tax Offset. Those earning below $37,500 will be getting a $700 tax offset. The maximum amount of LITO increased from $445 to $700 from July 1, 2020.

Low Income Threshold Australia

The following is the taxable income threshold that will apply for low income tax offset from the 2020/21 financial year going forward.

Taxable IncomeLITO
$37,500 or less$700
$37,501 – $45,000$700 minus ((Taxable Income minus $37,500) x 5%)
$45,001 – $66,667$325 minus ((Taxable Income minus $45,000) x 1.5%)
More than $66,667None

2. What is Low and Middle Income Tax Offset?

Low and Middle Income Tax Offset (LMITO) is a temporary tax discount issued by the Australian Government to help low and middle income earners lower the amount of tax they pay. Low and Middle Income Tax Offset (LMITO) will be available between 1 July 2018 and 30 June 2022. It is not a bonus payment and can only be used to lower your tax payable. Beneficiaries can get up to $1,500 tax offset.

Low and Middle Income Tax Offset Threshold 2021/22

The following is the taxable income threshold that will apply for Low and middle income tax offset during the 2021/22 financial year.

Taxable IncomeLMITO
$37,000 or less$675
$37,001 – $48,000$255 plus 7.5% of the amount of your taxable income that is above $37,000, up to a maximum of $1,500
$48,001 – $90,000$1,500
$90,001 – $125,999$1,500 minus 3% of the amount of your taxable income that is above $90,000

Summary of Low Income Tax Offset Australia

Don’t confuse LITO and LMITO. LMITO is a temporary tax offset running between 1 July 2018 and 30 June 2022 and after that, it will no longer be available. However, low income tax offset will be available from the 2020/21 financial year going forward. These tax offsets are meant to help low and middle income earners reduce their tax payable amount.

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