LMITO (sometimes referred to as LAMITO) is an acronym for the Low and Middle Income Tax Offset that the federal government introduced as part of the 2018 Budget.
It’s a temporary measure for the four financial years between 1 July 2018 and 30 June 2022. The LMITO is intended to provide tax relief for low and middle-income earners.
It’s important to understand that LMITO is a tax offset. Tax offsets can only be used to reduce or eliminate your tax liability, they can’t generate you a tax refund. So you can potentially have a tax offset that’s higher than your tax obligation. In that situation, the excess offset can’t be used.
In addition, you can’t use any offset excess to pay your Medicare levy (2% of your taxable income if you aren’t eligible for a Medicare exemption or reduction). In other words, you might have no tax liability after having the LMITO applied on your tax return, but you could still be liable to pay the Medicare levy.
Learn more about how income tax is calculated, tax offsets, and the Medicare levy.
Who is eligible for LMITO?
Your eligibility for a full or partial LMITO depends on your taxable income. You’ll be eligible for at least some LMITO if your taxable income for the financial year doesn’t exceed $125,333.
You don’t have to claim the LMITO on your annual tax return. The Australian Taxation Office (ATO) will determine your eligibility and apply the LMITO if necessary when they assess your income tax return.
What are the LMITO taxable income thresholds?
The taxable income thresholds for the four financial years the LMITO will be available are outlined in the table below.
|$37,000 or less||$200|
|$37,001 to $48,000||$200 plus 3% of the portion of your taxable income that exceeds $37,000|
|$48,000 to $90,000||$530|
|$90,000 to $125,333||$530 less 1.5% of the portion of your taxable income that exceeds $90,000|
The maximum available LMITO is $530 for taxpayers with taxable incomes between $48,000 and $90,000. The government estimates that 4.4 million Australian taxpayers will be eligible for the full LMITO of $530, while another 5.6 million will receive a partial LMITO.
Below are some examples of how partial LMITO entitlements are calculated by the ATO.
Jane works part-time and will earn a taxable income of $30,000 for the 2018/2019 financial year. She’ll be entitled to a partial LMITO of $200.
Mitchell will earn a taxable income of $45,000 this financial year. His LMITO will be calculated as follows:
$200 + (3% x (45,000 – $37,000))
= $200 + (3% x $8,000)
= $200 + $240
Mitchell will therefore be entitled to a partial LMITO of $440.
Amy will earn a taxable income of $110,000 this financial year. Her LMITO will be calculated as follows:
$530 – (1.5% x ($110,000 – $90,000))
= $530 – (1.5% x $20,000)
= $530 – $300
Amy will therefore be entitled to a partial LMITO of $230.
Does LMITO replace the Low Income Tax Offset (LITO)?
No, LMITO does not replace the Low Income Tax Offset (LITO). It will continue to apply for the four years that LMITO will be in operation. Income thresholds and the offset amount available under LITO are scheduled to be adjusted/increased for the 2022/2023 financial year (when the LMITO ceases). These adjustments are intended to lock in the LMITO tax cuts under the single LITO banner.
The current LITO income levels are outlined in the table below.
|$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 2022/23 and beyond (i.e. when LMITO ceases) are below.
|$37,000 or less||$645|
|$37,001 to $41,000||$645 less 6.5% of the portion of your taxable income that exceeds $37,000|
|$41,001 to $66,667||$645 less 8% of the portion of your taxable income that exceeds $41,000|
|$66,668 and above||Nil|
For the next four financial years (including the current one), taxpayers can potentially be eligible for both the LITO and the LMITO. Your eligibility for LITO is automatically determined by the ATO as part of assessing your income tax return and is applied as necessary, just like what will happen with LMITO.
Both Jane (Example 1) and Mitchell (Example 2) from earlier in this article would be eligible for the LITO in addition to the LMITO this financial year.
Their respective LITO entitlements are as follows:
Jane is entitled to the full LITO of $445. She can add this offset amount to her partial LMITO of $200.
Mitchell’s LITO will be calculated as follows:
$445 – (1.5% x ($45,000 – $37,000))
= $445 – (1.5% x $8,000)
= $445 – $120
Mitchell can add his partial LITO of $325. He can add this amount to his partial LMITO of $440.
On the other hand, Amy (Example 3) would not be entitled to any LITO because her taxable income exceeds $66,667.
Disclaimer: The contents of this article are for the purposes of providing general information only. Persons should seek appropriate advice from a licensed tax agent, accountant financial planner before undertaking any investments or strategies with respect to their tax or superannuation interests.