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Home / How super works / Super and tax / Income tax / Guide to the Low and Middle Income Tax Offset (LMITO)

Guide to the Low and Middle Income Tax Offset (LMITO)

October 9, 2020 by Barbara Drury 2 Comments

Reading time: 2 minutes

On this page

  • Background
  • Who’s eligible for LMITO
  • LMITO income thresholds
  • Examples of how LMITO is applied
  • Does LMITO replace the Low Income Tax Offset (LITO)?
  • Putting LITO and LMITO together

Now that the Low and Middle Income Tax Offset (LMITO) has become law, you may be eligible for a tax offset of up to $1,080, depending on your income.

LMITO helps low and middle-income earners reduce the amount of tax they pay. Because it’s a tax offset, it can only be used to lower your tax bill and can’t be used to generate a tax refund or pay your Medicare levy.


Note: Tax offsets are different to tax deductions, although both reduce the amount of tax you pay. Tax deductions such as work expenses reduce your taxable income. Offsets are then deducted from your tax liability.

Learn more about how income tax offsets and deductions work.


Background

LMITO was designed as a temporary measure for the four financial years between 1 July 2018 and 30 June 2022. This was stage 1 of the coalition government’s Personal Income Tax Plan.

Stage 2 of the plan was due to take effect from 1 July 2022. As part of stage 2, the Low Income Tax Offset (LITO) would be increased and the 32.5% tax bracket would be expanded from incomes up to $90,000 to incomes up to $120,000. This would supplant the need for LMITO, which would be rolled into the existing LITO.

In the 2020 Federal Budget, on 6 October 2020, the government announced that they would bring forward stage 2 of the plan, to take effect from 1 July 2020 instead of 1 July 2022. Rather than removing LMITO at the same time, the government also announced that LMITO would be extended for the 2020/21 financial year.

Who’s eligible for LMITO

Your eligibility for LMITO depends on your taxable income. You’re eligible for some LMITO if your taxable income is equal to or below $126,000. There’s no need to apply for it, the ATO will work out if you’re eligible when they assess your tax return.

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The government estimates that 4.5 million Australian taxpayers will be eligible for the full LMITO of $1,080, while another 5.6 million will receive a partial LMITO.

The Low and Middle Income Tax Offset:

  • Is not available to reduce tax payable on unearned income of minors (which is taxed at penalty rates)
  • Is non-refundable and cannot be carried forward or transferred
  • Does not have to be applied before other non-refundable tax offsets.

LMITO income thresholds

These LMITO thresholds apply for the 2018/19, 2019/20 and 2020/21 financial years.

Taxable incomeLMITO
$37,000 or lessUp to $255
$37,001 – $48,000$255 plus 7.5% of the portion of your taxable income that exceeds $37,000
$48,001 – $90,000$1,080
$90,001 – $126,000$1,080 minus 3% of the portion of your taxable income that exceeds $90,000

Source: Treasury

The maximum available LMITO is $1,080 for taxpayers with taxable incomes between $48,000 and $90,000.

Examples of how LMITO is applied

The following examples show how the ATO applies the LMITO.

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Example 1

Jane works part time and will earn a taxable income of $30,000 for the 2019/20 financial year. She’ll be entitled to a partial LMITO of $255.


Example 2

Mitchell will earn a taxable income of $45,000 for the 2019/20 year. His LMITO will be calculated as follows:

$255 + (7.5% x ($45,000 – $37,000))

= $255 + (7.5% x $8,000)

= $255 + $600

= $855

Mitchell will therefore be entitled to a partial LMITO of $855.


Example 3

Amy will earn a taxable income of $110,000 this financial year. Her LMITO will be calculated as follows:

$1,080 – (3% x ($110,000 – $90,000))

= $1,080 – (3% x $20,000)

= $1,080 – $600

= $480

Amy will therefore be entitled to a partial LMITO of $480.


Does LMITO replace the Low Income Tax Offset (LITO)?

No, the Low Income Tax Offset (LITO) will continue to apply in addition to LMITO while LMITO is in operation, but the last year for LMITO is due to be the 2020/21 financial year.

The 2018/19 and 2019/20 LITO income levels are outlined in the table below.

Taxable incomeLITO
$37,000 or less$445
$37,001 to $66,667$445 less 1.5% of the portion of your taxable income that exceeds $37,000
$66,668 and aboveNil

The LITO levels for 2020/21 and beyond are below.

Taxable incomeLITO
$37,500 or less$700
$37,501 – $45,000$700 less 5% of the portion of your taxable income that exceeds $37,000
$45,001 – $66,667$325 less 1.5% of the portion of your taxable income that exceeds $45,000
$66,668 and aboveNil

From 1 July 2018 to 30 June 2021 taxpayers may be eligible for both LITO and LMITO. Your eligibility for both is automatically determined and applied by the ATO when they assess your income tax return, so there’s no need to do anything.

Putting LITO and LMITO together

Both Jane (Example 1 above) and Mitchell (Example 2 above) would be eligible for the LITO in addition to the LMITO this financial year.

However, Amy (Example 3 above) would not be entitled to any LITO because her taxable income exceeds $66,667.

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Example 1 – LITO + LMITO

Jane will earn a taxable income of $30,000 for the 2019/20 financial year.

Jane can get the full LITO of $445.

She can add this offset amount to her partial LMITO of $255, giving her total offsets of $700.


Example 2 – LITO + LMITO

Mitchell will earn a taxable income of $45,000 for the 2019/20 financial year.

Mitchell’s LITO will be calculated as follows:

$445 – (1.5% x ($45,000 – $37,000))

= $445 – (1.5% x $8,000)

= $445 – $120

= $325

Mitchell can add his partial LITO of $325 to his partial LMITO of $855, for total offsets of $1,180.


Disclaimer: The contents of this article are for the purposes of providing general information only. Persons should seek appropriate advice from a licensed tax professional or financial planner before undertaking any investments or strategies with respect to their tax or superannuation.


Are you with a top performing super fund?

Click here to compare more than 90 Australian super funds, including returns, fees, features, awards and more.

Learn more about income tax rates and thresholds in the following SuperGuide articles:

Income tax: Australian tax brackets and rates (2020/21)

October 9, 2020

Guide to the Low Income Tax Offset (LITO)

October 9, 2020

Personal income tax cuts (2018–2025): What it means for you

October 9, 2020

How does SAPTO work? (Senior Australians and Pensioners Tax Offset)

August 11, 2020

Related topics

How super works Income tax Super and tax

IMPORTANT: All information on SuperGuide is general in nature only and does not take into account your personal objectives, financial situation or needs. You should consider whether any information on SuperGuide is appropriate to you before acting on it. If SuperGuide refers to a financial product you should obtain the relevant product disclosure statement (PDS) or seek personal financial advice before making any investment decisions. Comments provided by readers that may include information relating to tax, superannuation or other rules cannot be relied upon as advice. SuperGuide does not verify the information provided within comments from readers. Learn more

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Reader Interactions

Comments

  1. Chanice says

    July 8, 2019 at 9:03 pm

    If I’ve lodged my tax already for this financial year 18/19 will I still get the LMITO this term or will it be after my next tax income lodgement 19/20

    Reply
    • SuperGuide says

      July 9, 2019 at 8:07 am

      Hi Chanice – The LMITO applies from the 2018/2019 year.

      Best wishes
      The SuperGuide team

      Reply

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