Changes to Low & Middle Income Earner Tax Offset (LMITO)
You may have heard on the news or radio some information about a potential 'extra refund' that could be coming your way. This is due to changes to the Low and Middle Income Earner Tax Offset (LMITO).These changes are part of the Governments tax cuts plan, and have been waiting to pass through Parliament - they have officially passed through the Senate on 4th July 2019 and are now just awaiting Royal Assent. This means the tax cuts have been approved and the increase to LMITO will be backdated to the 2018/2019 year just finished.We have been fielding quite a few enquiries over the last few days, so to explain it in the simplest terms possible we've put together a FAQ's about it below. As the name 'Low and Middle Income Earner Tax Offset' is a bit of a mouthful, it's been shortened to LMITO. (If you're a bit of a nerd like us, you can read a bit more about it on the ATO website here: https://www.ato.gov.au/Individuals/Income-and-deductions/Offsets-and-rebates/Low-and-middle-income-earners/ )
I heard on the radio everyone will be getting an extra $1,000 bonus payment this year after I lodge my tax return, is that right?
Not really - some tax payers will be eligible for an increase in the LMITO. Simply put this means the amount of tax they should have paid on their income in 2019 will go down, and therefore any potential refund owing may go up.
Is this just like the K-Rudd's Economic Stimulus Payment?
No, that was a bonus payment paid to all adult Australian residents regardless of your circumstances, it really had nothing to do with your taxable income or tax return like this does.
Who is eligible for the increase to LMITO?
Anyone who earns under $126,000
If I am eligible for the LMITO am I guaranteed a higher tax refund?
No. This is a non-refundable tax offset. It has the same affect as reducing your tax rate slightly. This offset could increase your refund, however depending on your circumstances it could alternatively decrease the amount of tax you need to pay to the ATO, or it could actually have no affect at all on your refund. Read on for some examples of common scenario's and how it may affect you.
I earn up to $20,000 in income, how will it affect me?
It won't make any change to your refund - you already would have received all PAYG Withholding tax back at tax time anyway, so there is no change to you.
I earn between $20,000 and $37,000 in salary and wage income, and I have zero or minimal income from any other source (ie you may have a little bank interest), how will it affect me?
It may increase your refund by up to $255.
I earn between $37,000 and $48,000 in salary & wage income, and I have zero or minimal income from any other source (ie you may have a little bank interest), how will it affect me?
It may increase your refund by an amount between $255 - $1080.
I earn between $48,000 and $90,000 in salary & wage income, and I have zero or minimal income from any other source (ie you may have a little bank interest), how will it affect me?
It may increase your refund by $1080.
I earn between $90,000 and $126,000 in salary & wage income, and I have zero or minimal income from any other source (ie you may have a little bank interest), how will it affect me?
Your refund may increase by $1,080 for those earning $90,000, reducing down to $0 by the time your taxable income hits $126,000
I earn over $126,000, am I eligible for the tax offset?
No, the low and middle income earner tax offset is only applicable if your income is under $126,000
I earn under $18,200, will I get an extra $1,080 refund?
No, if you have paid tax via PAYG withholding, or via PAYG Instalments, you will get all that back anyway. If you haven't paid any tax throughout the year you will have a NIL assessment - no tax payable or refundable. This is a non-refundable tax offset, meaning it will only reduce your tax owing on your taxable income, the offset can not be refunded to you unless you have actually paid tax somehow during the year. For most people this is via PAYG Withheld on salary and wages, but it may also be via PAYG Instalments paid by yourself to the ATO.
I earn solely business or investment income, my taxable income is under $126,000 and I haven't paid any PAYG instalments during the year, does this mean I will get a tax refund now?
No, the offset reduces the tax payable on your taxable income. So for you, the offset will reduce your tax bill. You cannot get a tax refund if you haven't paid any tax throughout the year (either via PAYG Withholding or PAYG Instalments)
I earn solely business or investment income, my taxable income this year is under $126,000 and I have paid PAYG Instalments during the year, how will it affect me?
It depends on whether you've already paid enough in PAYG Instalments. If you have it will increase your refund back, if you haven't it will decrease your tax bill. And for some of you it may mean that instead of having a small amount of tax owing you will get a small refund instead.
I earn a mixture of salary & wage income and business or investment (ie interest or dividend) income. I have also paid PAYG Instalments during the year, how will it affect me?
Again it really depends on whether you have paid enough in PAYG Instalments throughout the year. Like the example above, if you have it will increase your refund back and if you have not it will decrease down your tax bill.
But why aren't I getting an extra $1,080 in my refund when my friend did?
Most likely they earned a different taxable income to you. Otherwise, possibly you had earnings that were not tax throughout the year and therefore had no tax credits to refund back.
My refund last year was $1500, I am eligible for the full LMITO this year, so I expected my refund to be $2500 this year, but it's less - why is that?
Your circumstances change year to year and there are countless reasons for variation in refund year to year. You may have had a change in earnings, you may have earned more untaxed income (ie bank interest or increase in net rental income) which has decreased your tax refund. Your employer may have taxed you incorrectly during the year. You may have only worked for a part year the year before, and therefore been overtaxed. You may have had higher work related deduction last year - perhaps you studied last year and not this year, or perhaps you used your car a lot for work purposes last year and very little this year. You may have had a HELP debt and your employer was unaware and hasn't withheld extra tax for it. You may have worked two jobs and claimed the tax free threshold at both, therefore you have been undertaxed during the year. There are many reasons and everyone's circumstances are different. The best thing to do is to actually compare the figures on this years tax return with last year.
Do I need to do anything to get this offset on my tax return?
No, the offset will be calculated when we prepare your return. You don't need to do anything.
I've been told I should wait to lodge my return or I may miss out on this extra tax offset?
The ATO has advised that any tax return lodged before the bill receives Royal Assent they will automatically amend and send out the extra refund owing or reduced tax bill.
So can I lodge my return now, after 4th July and be guaranteed I'll get the offset on my first Notice of Assessment from the ATO?
Not yet. The ATO has not yet advised us that they will be adding the offset to initial returns at this stage. The bill still has to receive Royal Assent, which should happen in the next few days.
But I want to lodge my return NOW!
Ok, we know everyone looks forward to their tax refund - however there is still some information that you may not have yet, so you may have to wait a few days or weeks anyway. For starters most health funds have advised they won't have Tax Statements available until after 5th July. Also, under the new reporting of payroll (STP) employers have until 31st July to finalise their payroll data with the ATO, meaning if you lodge your return before that has been finalised it may be incorrect and amended later on. Interest income also hasn't been sent to the ATO yet by most banks, so if you have any interest earning accounts you will need to provide us with that information yourself. The ATO state that if you are going to rely on your agent (us) downloading prefilling data such as bank interest, dividends from shares, health fund information and Employment Income, then you should wait until at least mid-August to complete your tax return. If you want to complete it earlier, you simply have to provide all that information to us yourself.