The recent income tax cuts do not mean you will personally receive a $1080 tax refund when you lodge your tax return.
Why? Let us help to clear up the confusion.
This “payment” is a Low to Middle Income Tax Offset (LMITO). The first thing to remember is; being a tax offset; you need to owe tax to offset the tax. And, if you owe tax, the offset will be first used to reduce the tax you owe, before receiving a refund of any balance. It is not a guaranteed cash payment.
The offset applies for a limited time. In this case, the offset applies to the 2018-19, 2019-20, 2020-21 and 2021-22 income years. So, if you are eligible to receive the offset, it applies to the taxable income you earned last financial year (2018-19) and you will receive any offset owing once you have lodged your tax return.
How much will you actually get?
To be eligible you must be reporting taxable income between $37,000 and $126,000 and the offset will be scaled as per the table below.
|Taxable income*||Offset minimum||Offset maximum|
|>$37,000 – <$48,000**||$255||$1,080|
|>$48,000 – <$90,000||$1,080|
|>$90,000 – <$126,000***||$1,080|
* Your taxable income is the income you earn less any deductions you claim – not your salary.
** offset entitlement is $255, plus 7.5% of the excess to a maximum of $1,080.
*** offset entitlement is $1,080, less 3% of the excess on taxable income above $90,000.
If you earned taxable income in 2018-19 of:
- Less than $21,885, while you have an entitlement to LMITO of $255, you do not pay personal income tax and therefore cannot utilise the offset.
- $45,000, you will receive a tax reduction of $855 ($255 plus 7.5% on every dollar between $37,000 and $45,000, in this case $8,000). You may also be eligible for the low income tax offset (LITO), see below.
- $85,000, you will receive a tax reduction of $1,080.
The LMITO is in addition to the existing low income tax offset (LITO) which is available to those with taxable income of less than $66,667. The maximum offset is $445 for those with taxable incomes of $37,000 or less reducing by 1.5% up to the threshold of $66,667. Once again, the LITO is a tax offset to reduce the amount of tax you pay. If you do not pay personal income tax, you do not receive the offset as a cash refund.
Despite the confusion, this tax cut will provide a benefit to those in the low to middle income tax bracket – it’s just not going to be in the form of an automatic extra payment from the Government.
If you’re still confused over this tax cut, please do not hesitate to contact our team to discuss