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When parliament resumed post the federal election, the re-elected Coalition government’s initial primary focus was on passing their proposed amendments to their previously legislated Personal Income Tax Plan.

The proposed amendments, contained within The Treasury Laws Amendment (Tax Relief So Working Australians Keep More Of Their Money) Bill 2019, received royal assent on 5 July 2019.

Low and middle income tax offset (LMITO)

When it comes to your 2018-19 tax return, a section of the abovementioned Bill comes into play; an amendment to the previously legislated low and middle income tax offset (LMITO). Please see below.

 

 Low & Middle Income Tax Offset (LMITO)

Applicable Income Years: 2018-19, 2019-20, 2020-21 & 2021-22

Taxable IncomeLMITO Previous EntitlementLMITO Amended Entitlement
≤$37,000$200$255
$37,001 – $48,000$200 plus 3 cents per dollar above $37,000$255 plus 7.5 cents per dollar above $37,000
48,001 – $90,000$530$1,080
$90,001 – $125,333$530 minus 1.5 cents per dollar above $90,000
$90,001 – $126,000$1,080 minus 3 cents per dollar above $90,000
≥$125,333NIL
≥$126,000NIL

 

In a nutshell, LMITO has the potential to provide tax relief of up to:

  • $1,080 for eligible single income earners.
  • $2,160 for eligible families on dual incomes.

LMITO considerations

When reading the above table, and reflecting on its relevance to your personal circumstances (your 2018-19 tax return), it’s important to understand some of the other finer details regarding LMITO, for example:

  • LMITO is a non-refundable tax offset, which means,
    • any eligible LMITO entitlement can only reduce the amount of tax payable on your taxable income to zero, and any eligible LMITO entitlement that is unused can’t be refunded;
    • any eligible LMITO entitlement can’t reduce your Medicare levy;
  • LMITO is in addition to the low income tax offset (LITO),
  • LMITO can’t be claimed if you did not receive any income throughout the year.

Please note: If you lodged your tax return prior to 5 July 2019, the ATO have advised that you don’t need to relodge it as they will recalculate your eligible LMITO entitlement in line with the recent amendments.

Depending on your personal circumstances (e.g. your income level and how much tax you paid throughout the year), your eligible LMITO entitlement may result in a larger tax refund or smaller tax debt.

 

Tax refunds

According to 2016-17 ATO statistics*, the average and median tax refund was $2,572 and $1,399, respectively.

If you have received or are expecting to receive a tax refund, remember you worked hard for it. So, make sure to get an appropriate return on your investment when using your tax refund.

In our animation, ‘Making the most of your tax refund’, we provide some helpful suggestions:

  • take a holiday,
  • invest in yourself,
  • repay or reduce debt,
  • spend it on essentials,
  • make a super contribution,
  • establish an emergency buffer,
  • put towards savings/investments,
  • spend a portion on discretionary items,
  • make a contribution to an existing or new established investment portfolio.

Alternatively, you may wish to consider applying a simple, but practical budgeting/spending rule to your tax refund, such as tailoring the 50/30/20 rule to your personal circumstances. Please see the below table.

 

 Tax Refunds: Practical Application of the 50/30/20 Rule

(ATR = Average tax refund, MTR = Median tax refund)

CategoryCategory Examples%

Allocation

ATR $

Allocation

MTR $

Allocation

NeedsFor example, rent or minimum home loan repayments, transportation, groceries, minimum credit card and car/personal loan repayments, general and personal insurances, private health insurance, education, utilities, phone and internet, etc.50%$1,286.00$699.50
WantsFor example, daily coffee, eating out, shopping, entertainment (e.g. subscription services, such as Netflix), hobbies, holidays, etc.30%$771.60$419.70
SavingsFor example, emergency funds, savings accounts (e.g. saving for a new car or a housing deposit), additional debt repayments, as well as investments inside and/or outside of superannuation.20%$514.40$279.80
TOTAL 100%$2,572.00$1,399.00

 

Moving forward

If you have received or are expecting to receive a tax refund, consider what’s relevant to you and how the appropriate use of your tax refund could make a difference to you now and into the future.

Importantly, we can help you with making this decision by taking the time to discuss with you some helpful suggestions that may be appropriate to your existing financial situation, goals and objectives.

If you have any questions regarding this article, please do not hesitate to contact us.

*data.gov.au, Taxation Statistics 2016-17