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Who is Entitled to the Low and Middle Income Tax Offset?

Pssst… Wanna reduce the amount of tax you have to pay? 

This isn’t a shady back-alley deal and we aren’t about to rip you off (we promise).

The truth is, there are ways that low and middle income workers can reduce the amount of tax they pay thanks to tax cuts and tax offsets introduced by the federal government and enforced by the ATO.  

So, if you’re wondering “is there an offset on my taxes?”, depending on what Australian tax bracket you fall into, the answer is probably yes. 

In this article, we are going to walk you through the low income tax offset (LITO), the low and middle income tax offset (LMITO), as well as any additional information you’re going to need in order to minimise the amount of tax you need to pay. 

So first thing is first, what is a tax offset? 

What is a tax offset? 

According to the ATO, a tax offset is: 

“A sum that reduces the tax you pay (known as your tax payable) on your taxable income. Your taxable income is your total income minus any deductions you claim.” – The Australian Taxation Office 

Let’s simplify this 

In layman’s terms, this means you will only reduce the amount of tax you actually have to pay, and you won’t get a cash refund with a tax offset/cut. It only “cuts” the amount of tax you have to pay. 

If you’ve been told you can get a tax offset on your tax return, but you’re a bit unsure on what you have to do, let us give you a hand! Simply pop onto the One Click Life platform, make your account, and let’s sink our teeth into your tax return and minimise the amount of tax you’re going to have to pay.  

What is the low and middle income tax offset (LMITO)

In addition to the low income tax offset (LITO), you might be able to claim LMITO as well.

LMITO is a tax offset designed to ease the cost of living for low and middle income earners in Australia (which has been at the front of everyone’s mind this year). 

In the 2022-2023 budget, the fat cats in Canberra increased the size of the offset to:

  • A minimum of $675
  • A maximum of $1,500

Can you claim LMITO? Are you eligible? 

The idea of cutting your tax sounds pretty exciting, doesn’t it? I bet you’re wondering if you can claim LMITO? Well, let me tell you there are two things that qualify you for the offset:

  • You must be an Australian resident for tax purposes
  • You must earn up to, but no more than $126,000

Still not sure if you can claim LMITO? Why not ask one of our friendly Number’s Geek? Our online help service is packed with Accountants that can tell you what sort of offset you can claim, and our online tax platform will help you calculate your payable tax! 

Make your life easier and log into One Click Life.

How big is your tax offset going to be? 

Just to reiterate once again, your tax offset won’t be a cash refund, it will only reduce your tax payable. 

This means 

  • If you only need to pay the ATO $10, your offset cannot be more than $10, and you will pay $0  
  • If the amount you need to pay the ATO is $2,000 and you’re allowed a $1,500 offset, you only pay $500

Your tax offset cannot be larger than your tax payable. 

That being said, how large of a tax offset are you entitled to? Well that depends on your taxable income bracket: 

  • If you earn less than $37,00 per year you will receive $255 reduction 
  • If you earn between $37,000 and $48,000 per year you will receive $255 + 7.5% of the amount you earn over $37,000 as a reduction 
  • If you earn between $48,000 and $90,000 you will receive $1,080 as a reduction 
  • If you earn between $90,000 and $126,000 you will receive $1,080 – 3% of the amount over $90,000

Tax brackets in Australia 

Before you start calculating or worrying about anything to do with tax, let’s get an understanding of what income tax rates/individual tax rates are. Also known as tax brackets, these rates determine how much tax you pay and how tax offsets are calculated. 

The rates are: 

  • Bracket 1: $0-$18,200 you pay no tax
  • Bracket 2: $18,201-$45,000 you pay 19 cents for every $1 you earn over $18,000
  • Bracket 3: $45,001-$120,000 you pay $5,092 + 32.5 cents for every $1 you earn over $45,000
  • Bracket 4: $120,001-$180,000 you pay $29,467 + 37 cents for every $1 you earn over $120,000
  • Bracket 5: $180,001 and above you pay $51,667 = 45 cents for ever $1 you earn over $180,000

How do you claim the LMITO?

It’s pretty easy to apply LMITO to your tax return – if you submit your tax return with One Click Life. 

All you need to do is submit your tax return with us and the offset should be calculated automatically. 

It honestly takes no time at all! Your details are pre-saved and prefilled into our system and your tax is automatically calculated. By spending less time fluffing about with your tax return you can spend more time on the things you love doing. 

If you’re worried about making any mistakes, don’t be. Your tax return is looked at by one of our Accountants before it is sent to the ATO so you can rest assured it has been filled out properly.