In treasurer Josh Frydenberg’s 2021 Federal Budget, it was announced that the Low and Middle Income Tax Offset (LMITO) is being extended for another financial year. The LMITO was meant to be replaced in 2022. However, the Morrison Government has decided to chart its new course of action after the upcoming federal election.
The ‘Lamington’ explained
The LMITO, known colloquially as the “Lamington,” is a temporary measure that gives tax relief to Australians earning less than $126,000 per year. Tax cuts of up to $1,080 for taxpayers classified under low and middle incomes are given this lump sum upon filing their tax returns at the end of each financial year.
The LMITO is Stage 1 of the Morrison Government’s original Personal Income Tax Plan, which was introduced in 2018. It was initially set to last until 2022, after which Stage 2 will introduce an increase in the Low Income Tax Offset (LITO), and Stage 3 will launch more significant tax cuts for high income earners in 2024.
In 2020, the government brought forward Stage 2; but, instead of removing the LMITO as originally planned, it was extended until 2021 with the intent of removing it the following year. This meant that for 2020-2021, Stages 1 and 2 were in effect at the same time. In the 2021 Federal Budget, the LMITO was extended for another financial year until 2022, which is said to cost the government about $7.8 billion — four times larger than the intended tax cuts.
How you benefit
If your taxable income is $126,000 or below, you are automatically eligible for the LMITO. It is estimated that about 4.5 million taxpayers are qualified for the full LMITO, while 5.6 million will receive partial LMITO.
While the LMITO is not permanent, it is meant to boost consumer confidence and consumption while the government continues to chart economic growth in the midst of the COVID-19 pandemic.
How to compute your LMITO
The minimum LMITO is $255 for Australians with incomes $37,000 or less and the maximum LMITO is $1,080 for Australians with incomes between $48,001 to $90,000.
If your taxable income is between $37,000 to $48,000, 7.5% of the amount exceeding $37,000 is added to the minimum $255 LMITO. On the other hand, if your taxable income is between $90,001 to $126,000, 3% of the amount exceeding $90,000 is deducted from the maximum $1,080 LMITO.
LMITO vs. LITO
It is important to note that you can be eligible for both LMITO and LITO until 2022. There are no applications required for both stimulus measures as the Australian Tax Office (ATO) will assess your eligibility upon review of your tax return.
Need help computing your LMITO? For personalised accounting and taxation services, DKM Accounting is your trusted tax advisor in Bella Vista and Pyrmont, NSW. Visit the Contact Us page for more details or give us a call at (02) 9788 1850.