The End of the Low and Middle Income Tax Offset (LMITO): Why Your Tax Refund is Less This Year

As taxpayers begin preparing to lodge their 2023 income tax returns, it is important for individuals to be aware of the changes that will come into effect regarding the low and middle income tax offset (LMITO). This offset has been a valuable benefit for many Australians, providing relief for those on lower and middle incomes. However, it is crucial to understand how these changes will impact your tax return and what steps you can take to navigate this transition smoothly.

What was the LMITO?

The offset was introduced in 2018 as a temporary measure to provide tax relief for individuals earning between $48,000 and $90,000. It provided a maximum offset of $1,080, (increased to $1,500 for the 2022 financial year), gradually reducing for incomes above $90,000 and phasing out completely at $126,000. This offset has been particularly beneficial for low and middle-income earners, helping to reduce their tax liability and increase their take-home pay, often by providing substantial refunds upon lodgement of their tax returns.

The low and middle income tax offset is set to end on June 30, 2022. This means that individuals who have relied on this offset in previous years will no longer be eligible for the same level of tax relief when they lodge their 2023 tax returns. It is likely that most taxpayers will receive lower tax refunds than previous years, or possibly will have to pay tax.

However it is also important to note that the Low Income Tax Offset (LITO) is still available to low income earners for the 2023 financial year. Taxpayers who earned under $37,500 will receive the maximum offset of $700, which gradually reduces for incomes up to $66,667, after which it phases out.

How to mitigate the loss of the offset

One way to navigate the end of the low and middle income tax offset is to review your income and expenses carefully. By understanding your financial situation, you can identify any potential deductions or offsets that may be available to you. This could include work-related expenses, self-education expenses, or charitable donations. By maximising your deductions, you can potentially reduce your tax liability and mitigate the loss of the low and middle income tax offset.

Additionally, it is important to consider your superannuation contributions. Making additional contributions to your superannuation can be a tax-effective strategy, as these contributions are generally taxed at a lower rate than your personal income, and you can also receive a tax deduction for personal super contributions. By taking advantage of the concessional contribution cap, you can potentially reduce your taxable income and your tax liability.

Furthermore, seeking professional advice from a tax accountant or financial advisor can be beneficial in navigating the end of the low and middle income tax offset. We have a deep understanding of the tax system and can provide personalised advice based on your individual circumstances. We can help you identify any potential tax planning strategies and ensure that you are maximising your tax benefits.

What now?

It is crucial to be prepared for this change and understand how it will affect your tax return. By reviewing your income and expenses, maximising deductions, considering superannuation contributions, and seeking professional advice, you can navigate this transition smoothly and potentially minimise the impact on your finances. Remember, being proactive and informed is key to ensuring you make the most of the available tax benefits.