As we bid farewell to the tax offset known as LMITO, Australian workers can expect smaller tax refunds in 2023. Unfortunately, there's no way around it. In this blog post, we'll delve into what LMITO was and how it will impact you when you file your tax return this year.
The Low and Middle Income Tax Offset (LMITO), as you might already know, was a temporary tax relief measure introduced by the Australian Government to offer some much-needed support to low and middle-income earners. Basically, it was like a little extra cash in your pocket when times were tough. But, since it was never meant to be a permanent solution, it's time to say goodbye.
Introduced by the Australian government in the 2018-19 tax year, LMITO was designed to support low to middle income earners by reducing the amount of tax they paid. This tax offset meant these earners had a bit more money to spend or save at the end of the financial year.
To see the LMITO in action, let's say you were an individual who earned between $48,000 and $90,000 a year. In this case, the LMITO could have boosted your annual tax refund by as much as $1,080. Not too shabby for doing nothing more than just being a regular Joe, right?
For those earning less than $37,000, the LMITO was worth between $255 to $1,080
Individuals earning between $37,501 and $45,000 received an LMITO of $700, reduced by 5 cents for every $1 of income above $37,500
Furthermore, those with earnings between $48,000 and $90,000 were granted the maximum offset of $1,080
For individuals making between $45,001 and $66,667, the LMITO was reduced from $325 by 1.5 cents for every $1 of income above $45,000
For the 2021-22 financial year, low and middle-income earners who were eligible for LMITO had their offset entitlement increased by $420
Great question! Let's dive into some possible implications of the LMITO ending for you and your business:
If you're a low or middle-income earner - Without the LMITO boost, you might see a smaller tax return or even have to pay a bit more tax. But don't panic! Just like any other change, it's about adapting and finding new ways to keep moving forward. This could mean reevaluating your budget, looking for opportunities to grow your revenue, or seeking business advice from trusted advisors.
If you're a business owner - With the end of the LMITO, people might tighten their belts, leading to a potential impact on revenue for your business. Now's the time to get creative, explore new strategies, and identify innovative ways to continue growing your business. And hey, you're never alone in this journey—we're always here to brainstorm together!
If you employ low or middle-income earners - Your team might start feeling the pinch without LMITO. Offer them support by understanding their concerns and, if needed, having a discussion about adjusting budgets, cutting costs, or identifying areas where they can save or earn more.
Nothing! Just be aware and don't get angry at your accountant if you see a drop in your refund (or even get a payable!). Your accountant will automatically assess your income and apply any ATO tax offset you are entitled to, adjusted for the year's tax return you are completing.
Well, LMITO was never meant to be a permanent resident in the tax landscape. It was initially introduced as a temporary measure to help Aussies navigate the challenging economic environment resulting from natural disasters and the global financial crisis. It was later extended to assist in the recovery efforts post COVID-19.
However, maintaining the LMITO indefinitely would add a significant burden to the national budget. That's why, following its spirit of a temporary relief measure, the LMITO was set to retire after the 2021-22 tax year, making way for new measures and reframing the tax landscape once again.
The Low Income Tax Offset (LITO) is a tax offset available to Aussie residents who earn less than $66,667 per year. The good news for low income earners is that the low income tax offset (LITO) will continue. There have been no announced changes to this offset.
For those earning $37,500 or less, the maximum LITO provided is $700. However, if your income falls between $37,501 and $45,000, the LITO you receive is $700 minus 5 cents for every $1 above $37,500
It’s important to note, the offset can only reduce tax payable to nil – any excess offset is not refundable. Plus, instead of paying the LITO as a refund, it may be used to reduce any outstanding debt you might have with the ATO.
While LITO offers tax breaks for low income earners, the upcoming changes to income tax rates provide additional benefits for those on high incomes.
The Australian Taxation Office's (ATO) Stage 3 tax cuts essentially aim to simplify the tax system and reduce the tax burden for high-income earners. This is achieved mainly by abolishing the current 37% tax bracket, lowering the existing 32.5% bracket to 30%, and raising the threshold for the top tax bracket from $180,001 to $200,001.
However, this plan has not been without criticism. Some experts argue that it may lead to middle-income earners bearing more of the tax load. Additionally, these tax cuts will come at a significant cost to the budget, with estimates suggesting they will cost about $20 billion a year from mid-2024, and this figure could rise to $31 billion by 2030.
Even though we can't magic the LMITO back into existence, we're armed with expertise, insights (and a whole lot of elbow grease) to help you navigate the change and ensure you get the best possible returns.
If you're stuck, confused, or overwhelmed completing this years tax returns, we totally get it. Aside from LMITO you could have added a new investment property, tried your hand at cryptocurrency, or just need some guidance on tricky tax issues like other income streams, HECS, or eligible deductions.
That's where we come in! Trekk Advisory is here to ease your worries. Our team of tax experts has a whopping combined experience of 50+ years! They'll work their magic to get you the best possible results, all while keeping you compliant with the ATO and tax laws. We're all about making sure you don't pay a cent more in tax than you need to.