Many Australians have been shocked to find their tax returns to be smaller than expected this year. This unfortunate reality stems from the removal of the Low and Middle Income Tax Offset (LMITO), otherwise known as the “Lamington”.
A tax incentive that has been cherished by many, the LMITO has provided relief to low and middle-income earners, boosting their tax refunds by up to $1500 in previous years. The removal of the LMITO this year has come as an unwelcome shock to tax payers who may have been relying on a return similar to the last few years.
Understanding the Low and Middle Income Tax Offset
Introduced in the 2018-2019 financial year, the Low and Middle Income Tax Offset was designed to support Australians on modest incomes by reducing their tax burden. This offset provided a maximum benefit of up to $1,500 (or 2021/22 financial year) to individuals earning between $48,000 and $90,000. The offset amount gradually decreased for those earning between $90,001 and $126,000.
Why has the LMITO been removed this year?
While the LMITO served its purpose of providing much-needed tax relief to lower and middle-income earners, its removal comes as a part of the government’s broader tax policy adjustments. The government may have opted to remove this offset due to evolving economic conditions, changes in tax revenue projections, or a shift in fiscal priorities.
Impact on Taxpayers
The LMITO has been removed and we are now left with the LITO (low income tax offset). This will provide a smaller offset (maximum of $700 for those with taxable income less than $37,500) with a gradual decrease to nil up to a taxable income of $66,667.
Broadly speaking, this means that taxpayers with taxable incomes between $66,667 and $90,000 will receive approximately $1,500 less than they did when they completed their 2022 tax return – assuming similar circumstances. Taxpayers slightly higher than this bracket will also receive less when compared to their prior year return.
For many Australians who rely on these annual tax refunds to cover expenses, the smaller tax return can pose financial challenges. Budgets may need to be revised, and spending habits might be affected as a result.
Adjusting Financial Strategies
With the removal of the LMITO, it becomes even more crucial for individuals to reassess their financial strategies. Here are some practical tips to cope with a smaller tax return:
- Review Your Budget: Re-evaluate your budget to account for the reduced tax refund. Identify areas where you can cut back on discretionary spending and prioritise your essential expenses.
- Increase Super Contributions: Consider making additional voluntary contributions to your superannuation fund. This can not only help secure your financial future but also reduce your taxable income next year.
- Explore Deductions: Ensure you take advantage of all eligible deductions when lodging your tax return. Work-related expenses, charitable donations, and investment costs can all help lower your taxable income and increase the amount of your return.
- Seek Professional Advice: If you’re unsure about how the removal of the LMITO impacts your specific financial situation, it’s wise to consult with a qualified tax professional who can provide you with personalised guidance.
The removal of the Low and Middle Income Tax Offset this financial year has left many Australians with a smaller tax return than they have become accustomed to. As taxpayers adapt to this change, it’s essential to be proactive in reassessing financial strategies and seeking expert advice when necessary. By doing so, individuals can navigate these changes and continue to manage their finances effectively.
If you have any questions or concerns about your income tax this year, please do not hesitate to get in touch with one of our taxation specialists at PTP on (03) 5821 8644
