Everything You Need to Know About Low and Middle Income Tax Offset (LMITO)

With costs of living rising, the Australian government is looking for ways to reduce the financial burden on families who are struggling to make ends meet. The Low and Middle Income Tax Offset (LMITO) was a tax deduction to reduce your tax payable. The LMITO was a part of the federal budget for 2018 through 2022. If you were a resident making under $126,000 per year, you could claim this tax offset. 

While this was a successful program for those who qualified, it has unfortunately come to an end. If you’ve benefited from the LMITO in the past, it can be scary to consider how this might affect your taxes moving forward. In this guide, we’ll explain everything you need to know about the Low and Middle Income Tax Offset so you’re ready for tax season.

What Was the Low and Middle Income Tax Offset?

To begin, let’s refresh our memories about what the Low and Middle Income Tax Offset was. There was a lot of confusion about how this tax program worked, and it’s leading to even more misunderstandings now that the program is no longer in use. 

Most believed it was a cash payment or lump sum given as part of your tax refund, but this isn’t actually the case. In reality, it only reduced the amount of taxes you owed at the end of the financial year. This results in a lower tax rate and possibly a larger refund. However, if you didn’t pay taxes, you weren’t entitled to the offset. Here’s a breakdown of how the offset fit into each taxable income bracket:

  • $0 – $37,000: $255 offset
  • $37,000 – $48,000: $255 and 7.5 cents for every dollar over $37,000 (up to $1,080 maximum) 
  • $48,001 – $90,000: $1,080
  • $90,001 – $126,000: $1,080 and 3 cents for every dollar above $90,000

Additionally, during the 2021-22 income year, those who earned under $126,000 also received an additional $420 offset to their taxes. As you can see from this chart above, the savings from this tax offset could be pretty significant. These differences in taxable income boosted Australian families’ tax refunds, and this loss will be sorely missed.

Why Is the LMITO Program Ending?

Now that you understand how the program worked, why has the ATO decided to no longer continue this tax offset? Ultimately, the answer lies with the COVID-19 pandemic. During the pandemic, the Australian government spent more than it took in taxes to help families shoulder this burden. Now, the national debt is higher than ever and only likely to grow even more. 

Regardless of the national debt, many financial experts still argue the tax program was more beneficial than it was costly. Cutting tax relief programs is only a small drop in the bucket, and the government could find greater success by cutting spending which directly impacts inflation. Though you can argue for and against these tax offsets all day, the reality is that Australian families who fall into these income brackets need a new plan for tax season.

How to Maximize Your Tax Savings

If you’re feeling the effects of this program coming to an end, don’t let that worry you too much. There are many ways to make the most of tax season regardless of your income. All tax filers are entitled to claim valid deductions. For example, here are some common deductions:

  • Work vehicle and travel expenses
  • Work-from-home deduction
  • Mobile phone usage
  • Professional fees and subscriptions
  • Gifts and donations
  • Interest and investments
  • Income insurance
  • Educational expenses
  • Tools and equipment

To make the most of your deductions, it’s a good idea to keep accurate, clear records of all of your spending throughout the year. Anything you spend money on to earn an income (ie. work expenses) can usually go towards tax deductions, but you need to be able to prove this purchase. 

Maximising your tax return is a smart way to avoid overpaying. You work hard for your money. Make sure you’re keeping as much of it as you can. This is also something you can discuss with your employer, who might be able to place some of your income in a pre-tax benefit. As you can see, there are many effective ways to keep your tax bill under control no matter your situation.

When in Doubt, Talk to an Expert

Finally, don’t be afraid to talk to an expert. Taxes are complicated, and you want to make sure you’re saving as much money as possible. A professional can review your spending, expenses, and so on to make sure you’re on track. 

It’s true that many will feel the loss of the Low and Middle Income Tax Offset this year, but it doesn’t have to be a big blow to your plan. Talk to a trusted expert at Debt Busters today on 1300 368 322 to check your financial situation. We’ve helped Aussies manage their money for over a decade, and we navigate any change in the tax landscape with confidence.


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