There was one thing to make low and center revenue Aussies smile within the finances once more this yr. Tax cuts are staying – for now!
The 2021 Budget threw in a couple of perks for companies however the one which round 10 million taxpayers will recognize, is the choice to proceed the tax offset for low and center revenue earners.
Due to complete on July 30 this yr, the Low and Middle Income Tax Offset, also known as the LMITO, is about to remain for one more yr..
What is a tax offset?
First, let’s be clear… whereas the media is reporting these as tax cuts for 2021, what’s truly occurring is an extension of an present tax offset. So, let’s cowl what a tax offset truly is.
A tax offset, is a discount of your tax payable by the offset quantity. It can solely scale back tax payable to nil although – any extra offset isn’t refundable.
Contrary to well-liked perception, you don’t obtain the quantity of the offset entitlement immediately as a lump sum.
Let’s clarify that:
- If you earn $87,000 a yr, within the 2021/22 monetary yr you might be eligible for a $1080 tax offset, so your tax payable is diminished from $18742 to $17662 – successfully giving a further refund of $1080.
What is the Low and Middle Income Tax Offset (LMITO)?
The LMITO is a tax offset of as much as $1,080. Originally launched as an offset of $540 in Stage 1 of the Government’s bigger Personal Income Tax Plan, Stage 2, which began on 1 July 2020, noticed the tax offset enhance to $1,080.
This can be the place we noticed some tax cuts for center revenue earners within the type of increasing the 32.5% tax bracket to incorporate incomes of as much as $120,000, up from $90,000.
While the LMITO was slated to finish on 30 June 2021, the financial fallout of the Pandemic led to the Federal Government extending the offset for one more yr.
As introduced within the 2021 Budget, the LMITO extension now consists of the 2021/22 monetary yr and is scheduled to finish on 30 June 2022.
Am I eligible for the tax cuts or the LMITO in 2021?
If you’re an Australian resident for tax functions and earn as much as $126,000, you might be eligible for the LMITO.
The quantity of LMITO you obtain varies relying in your revenue. More on that beneath…
How a lot do I get this yr?
As we clarified earlier, you received’t truly obtain a lump sum. The offset reduces your tax payable. But that’s nonetheless excellent news, you may even see just a little additional in your tax refund this yr. This is because of the discount in tax that you just’re required to pay this yr.
It’s essential to notice, you probably have an excellent debt with the ATO, any refund which incorporates the LMITO could also be used to scale back that debt slightly than paid to you as a refund. Any HELP/HECS debt stays unaffected by these cuts.
The tax reduce you obtain will depend on your complete taxable revenue for the yr, as follows:
- Less than $37,000 per yr = $255
- Between $37,000 and $48,000 = $255 + 7.5% of the quantity over $37,000
- Earn between $48,000 and $90,000 = $1080
- Between $90,000 and $126,000 = $1080 much less 3% of the quantity over $90,000
One different essential level to make clear, the LMITO isn’t a refund. This implies that you probably have not paid tax throughout the yr, you can’t obtain it. For instance, in case you earned $20,000 final yr however didn’t pay any tax you received’t obtain the $255 as a lump sum fee.
What do I have to do to assert the 2021-22 tax cuts?
Thankfully, you don’t have to work out something – or do something in a different way at tax time.
All it’s good to do is lodge your tax return as common at Etax.com.au. Our intelligent IT workforce have constructed the tax cuts and the low and center offset proper into our calculator. It will routinely embody any offsets you’re entitled to into the refund estimate you see on display. How simple is that?
If you’ve any questions on tax cuts or anything relating to your tax return, please get in contact.