Low-income offset – LMITO increased by $420 for 2021-22
The low and middle income tax offset (LMITO) will be increased by $420 for the 2021-22 income year so that eligible individuals will receive a maximum LMITO benefit up to $1,500 for 2021-22 (up from the current maximum of $1,080).
This one-off $420 cost of living tax offset will only apply to the 2021-22 income year. Importantly, the Government did not announce an extension of the LMITO to 2022-23. So, it remains legislated to only apply until the end of the 2021-22 income year (albeit up to $1,500 instead of $1,080).
The Government said the LMITO for 2021-22 will be paid from 1 July 2022 to more than 10 million individuals when they submit their tax returns for the 2021-22 income year. Other than those that do not require the full offset to reduce their tax liability to zero, all LMITO recipients will benefit from the full $420 increase. That is, the proposed one-off $420 cost of living tax offset will increase the maximum LMITO benefit in 2021-22 to $1,500 for individuals earning between $48,001 and $90,000 (but phasing out up to $126,000).
Those earning up to $48,000 will also receive the $420 one-off tax offset on top of their existing $255 LMITO benefit (phasing up for incomes between $37,001 and $48,000) – see table below
All other features of the current LMITO remain unchanged (including that it will only apply until the end of the 2021-22 income year). Consistent with the current LMITO, taxpayers with incomes of $126,000 or more will not receive the additional $420.
Low-and middle-income tax offset for 2021-22 (only)
|
Taxable Income |
LMITO 2021-22 (current) |
LMITO 2021-22 (proposed) |
|
$0 – $37,000 |
$255 |
$675 |
|
$37,001 – $48,000 |
$255 + ([TI – 37,000] x 7.5%) |
$675 + ([TI – 37,000] x 7.5%) |
|
$48,001 – $90,000 |
$1,080 |
$1,080 |
|
90,001 – 126,000 |
$1,080 – ([TI – 90,000] x 3%) |
$1,500 – ([TI – 90,000] x 3%) |
|
$126,000 + |
$nil |
$nil |
Low-income tax offset (unchanged – not to be confused with LMITO)
The low-income tax offset (LITO) will also continue to apply for the 2021-22 and 2022-23 income years. The LITO was intended to replace the former low income and low and middle income tax offsets from 2022-23, but the new LITO was brought forward in the 2020 Budget to apply from the 2020-21 income year.
Low income tax offset for 2021-22 and 2022-23 (unchanged)
|
Taxable Income |
Amount of Offset |
|
$0 – $37,500 |
$700 |
|
$37,501 – $45,000 |
$700 – ([TI – $37,500] x 5%) |
|
$45,001 – $66,667 |
$325 – ([TI – $45,000] x 1.5%) |
|
$66,668 + |
Nil |
The maximum amount of the LITO is $700. The LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
Personal tax rates unchanged for 2022-23; Stage 3 start from 2024-25 unchanged
In the Budget, the Government did not announce any personal tax rates changes. The Stage 3 tax changes commence from 1 July 2024, as previously legislated.
Resident rates and thresholds for 2022-23
The 2022-23 tax rates and income thresholds for residents (unchanged from 2021-22) are:
|
Taxable Income |
Tax Payable |
|
$0 – $18,200 |
$nil |
|
$18,201 – $45,000 |
$nil + 19% of excess over $18,200 |
|
$45,001 – $120,000 |
$5,092 + 32.5% of excess over $45,000 |
|
$120,001 – $180000 |
$29,467 + 37% of excess over $120,000 |
|
$180,001 + |
$51,667 + 45% of excess over $180,000 |
Stage 3: rates and thresholds from 2024-25 onwards
The Stage 3 tax changes commence from 1 July 2024, as previously legislated. From 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37% tax bracket will be entirely abolished at this time.
Therefore, from 1 July 2024, there will only be 3 personal income tax rates – 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%. With these changes, around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.
Resident rates and thresholds – from 2024-25 onwards
The tax rates and income thresholds from the 2024-25 for residents (as already legislated) are:
|
Taxable Income |
Tax Payable |
|
$0 – $18,200 |
$nil |
|
$18,201 – $45,000 |
$nil + 19% of excess over $18,200 |
|
$45,001 – $200,000 |
$5,092 + 30% of excess over $45,000 |
|
$200,001 + |
$51,592 + 45% of excess over $200,000 |
Foreign residents
For 2022-23, the tax rates for foreign residents (unchanged from 2021-22) are:
|
Taxable Income |
Rate |
|
$0 – $120,000 |
32.5% |
|
$120,001 – $180,000 |
37% |
|
$180,001 + |
45% |
For 2024-25 and later income years, the tax rates for foreign residents are:
|
Taxable Income |
Rate |
|
$0 – $200,000 |
30% |
|
$200,001 + |
45% |
Working holidaymakers
For 2022-23, the rates of tax for working holiday makers (unchanged from 2021-22) are:
|
Taxable Income |
Rate |
|
$0 – $45,000 |
15% |
|
$45,001 – $120,000 |
32.5% |
|
$120,001 – $180,000 |
37% |
|
$180,001 + |
45% |
For 2024-25 and later income years, the rates of tax for working holiday makers are:
|
Taxable Income |
Rate |
|
$0 – $45,000 |
15% |
|
$45,001 – $200,000 |
30% |
|
$200,000 + |
45% |
Medicare levy low-income thresholds for 2021-22
For the 2021-22 income year, the Medicare levy low-income threshold for singles will be increased to $23,365 (up from $23,226 for 2020-21). For couples with no children, the family income threshold will be increased to $39,402 (up from $39,167 for 2020-21). The additional amount of threshold for each dependent child or student will be increased to $3,619 (up from $3,597).
For single seniors and pensioners eligible for the SAPTO, the Medicare levy low-income threshold will be increased to $36,925 (up from $36,705 for 2020-21). The family threshold for seniors and pensioners will be increased to $51,401 (up from $51,094), plus $3,619 for each dependent child or student.
Date of effect
The increased thresholds will apply to the 2021-22 and later income years. Note that legislation is required to amend the thresholds and a Bill will be introduced shortly.
COVID-19 test expenses to be deductible
The Budget papers confirm that the costs of taking a COVID-19 test to attend a place of work are tax deductible for individuals from 1 July 2021. In making these costs tax deductible, the Government will also ensure FBT will not be incurred by businesses where COVID-19 tests are provided to employees for this.
The changes will take effect from 1 July 2021 (ie last year).
