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

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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.

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.

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 income	LMITO
$37,000 or less	Up 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.

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 income	LITO
$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 above	Nil

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

Taxable income	LITO
$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 above	Nil

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.