Low and Middle Income Tax Offset

15 July 2019

The Federal Government’s Personal Income Tax Plan has now become law, delivering tax relief for millions of Australians.

The plan has three phases

Phase one is the Low and Middle Income Tax Offset (LMITO)

Increase the LMITO from a maximum amount of $530 to $1,080 per annum and increase the base amount from $200 to $255 per annum
Taxpayers with a taxable income which does not exceed $37,000 will receive a low and middle income tax offset of up to $255
Taxpayers with a taxable income which exceeds $37,000 but is not more than $48,000 will receive $255, plus an amount equal to 7.5 per cent to the maximum offset of $1,080
Taxpayers with a taxable income which exceeds $48,000 but is not more than $90,000 will be eligible for the maximum low and middle income tax offset of $1,080
Taxpayers with a taxable income which exceeds $90,000 but is not more than $126,000 will be eligible for a low and middle income tax offset of $1,080, less an amount equal to 3 per cent of the excess.

The tax offset is being applied to the 2018-2019 income year and will also be available in the 2019-20, 2020-21 and 2021-22 income years.

The tax offset is available now.
If you’re eligible for the offset, it will be automatically processed by the ATO when you lodge your tax return.

Phase two will see the 19% personal income tax bracket increased from $41,000 to $45,000

This will change the tax rates as follows:

19 per cent tax rate for those earning above $18,200 but not more than $45,000

32.5 per cent tax rate for those earning above $45,000 but not more than $120,000

37 per cent tax rate for those earning above $120,000 but not more than $180,000

45 per cent tax rate for those earning above $180,000

Additionally, the Low Income Tax Offset (LITO – not to be confused with the LMITO) will be increased from a maximum of $645 to $700 for those earning $37,500 or less, and will be applied as follows:

Those who earn $37,500 or less will receive a LITO of $700

Those who earn above $37,500 but not more than $45,000 will receive a LITO of $700, less an amount equal to 5 per cent of the excess

Those who earn above $45,000 but not more than $66,667 will receive a LITO of $325, less an amount equal to 1.5 per cent of the excess.

Phase Two will take effect in the 2022-2023 income year.

Phase three will see the 32.5% marginal tax rate reduced to 30% for a resident individual

Impacting the tax rates as follows:

19 per cent tax rate for those earning above $18,200 but not more than $45,000

30 per cent tax rate for those earning above $45,000 but not more than $200,000

45 per cent tax rate for those earning above $200,000

Phase three will take effect in the 2024-2025 income year.

Contact the team at Shakespeare on 08 9321 2111 if you’d like to discuss how this may apply to your individual circumstances.

Sources:
Australian Taxation Office “Lower taxes for hard working Australians: building on the Personal Income Tax Plan” July 2019

Australian Taxation Office “Low and middle income earners” July 2019

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Kath