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Note: In the 2019 Federal Budget the coalition government proposed increasing the LMITO from the 2018/2019 financial year. This has now passed Parliament and will soon be legislated. The ATO has confirmed they will apply the LMITO for 2018/2019 tax returns.
The Low and Middle Income Tax Offset (LMITO) helps low and middle income earners lower the amount of tax they need to pay. Because it is a tax offset, it can only be used to lower the amount of tax that you owe and not to generate a tax refund or pay your Medicare Levy.
It was announced as part of the 2018 Federal Budget and is a temporary measure for the four financial years between 1 July 2018 and 30 June 2022. From 1 July 2022 the Low Income Tax Offset (LITO) will be increased, and the 32.5% tax bracket will be expanded from $90,000 to $120,000, which will supplant the effect of the LMITO.
Learn more about Australian income tax and how tax offsets are applied
Your eligibility for LMITO depends on your taxable income. You’re eligible for some LMITO if your taxable income is at or below $125,333. You don’t have to apply for LMITO, 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 taxable income thresholds below were announced in the 2019 Federal Budget. They have now passed parliament and will soon be legislated.
These LMITO thresholds apply for the 2018/2019, 2019/2020, 2020/2021 and 2021/2022 years.
| Taxable income | LMITO |
|---|---|
| $37,000 or less | $255 |
| $37,001 to $48,000 | $255 plus 7.5% of the portion of your taxable income that exceeds $37,000 |
| $48,001 to $90,000 | $1,080 |
| $90,001 to $126,000 | $1,080 less 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.
The following examples show how the ATO applies the LMITO.
Example 1
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 $255.
Example 2
Mitchell will earn a taxable income of $45,000 this financial 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.
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.
| 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 2022/23 and beyond (i.e. when LMITO ceases) are below.
| Taxable income | LITO |
|---|---|
| $37,000 or less | $700 |
| $37,001 to $45,000 | $700 less 5% of the portion of your taxable income that exceeds $37,000 |
| $45,001 to $66,667 | $300 less 1.5% of the portion of your taxable income that exceeds $45,000 |
| $66,668 and above | Nil |
From July 1 2018 to June 30 2022 taxpayers can potentially be eligible for both the LITO and the LMITO. Your eligibility for LITO and LMITO is automatically determined and applied by the ATO when they assess your income tax return.
Examples continued
Both Jane (Example 1 above) and Mitchell (Example 2 above) would be eligible for the LITO in addition to the LMITO this financial year.
Jane can get the full LITO of $445. She can add this offset amount to her partial LMITO of $255.
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. He can add this amount to his partial LMITO of $855.
However, Amy (Example 3 above) would not be entitled to any LITO because her taxable income exceeds $66,667.
Learn more about income tax in the following SuperGuide articles:
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.