Tax Return:: 2022FY LITO and LMITO Rates

Hello, this is your tax and super specialist, P&C Tax Professionals.

During the 2021-22 federal Budget announcement, the government has revealed that the low and middle income tax offset (LMITO) will remain in place for the 2021-22 income year.

As shown below, we have summarised the offset you will be able to claim depending on your income bracket.

Please note that as of now, the LMITO is only available for the 2018-19, 2019-20, 2020-21 and the 2021-22 financial year.

Just like any other tax offset, the LMITO’s primary purpose is not to increase your tax refund but rather to help reduce the tax payable on your taxable income (i.e., the amount of tax you have to pay on your income).

Let’s take a look at a couple of examples to help us gain a better understanding of the concept.

<Example 1: Income Under $37,000>

Nicole is on a student visa and her taxable income for the 2021-22FY is $15,500.

She did not pay any tax since her income fell within the tax-free threshold of $18,200.

In this case, Nicole would now be able to claim a low income tax offset of $700 and a low and middle income tax offset of $255. Here, Nicole is eligible for both offsets but since she did not pay any tax, ultimately, she does not have any tax payable to reduce on her tax return. Taking into account the fact that the two offsets are non-refundable in nature (i.e., any unused offset cannot be refunded), in the end, Nicole’s tax payable amount would remain at $0 and she would be not be subject to any tax refund.

<Example 2: Income Between $37,501 and $45,000>

Terry’s taxable income for the 2021-22FY is $42,500.

This means that Terry’s income falls within the second income bracket for both offsets.

For his low income tax offset:

$42,500 - $37,500 = $5,000

$5,000 x $0.05 = $250

$700 - $250 = $450

Total low income offset of $450.

For his low and middle income tax offset:

$42,500 - $37,000 = $5,500

$5,500 x $0.075 = $412.50

$255 + $412.50 = $667.50

Total low and middle income tax offset of $667.50.

Terry’s tax payable amount can ultimately be reduced by up to $450 + $667.50 = $1,117.50 using the (1) low income tax offset and (2) low and middle income tax offset.

In conclusion, if you are an Australian resident for tax purposes and if your taxable income falls within one of the income brackets as outlined above, you will be able to take advantage of the LITO and LMITO. Our accountants at P&C Tax will automatically calculate this for you when you apply for your tax return with us.

Well, that wraps it up for now but as always if you have any questions or if you would like to enquire about a particular matter regarding your tax return, please feel free to contact us on our Official Facebook Page (P&C Tax – Professionals) or simply direct the questions to our email address at pnctax@naver.com.