Australia Middle and Low-Income Tax Offset (LMITO): Who Can Claim and How Much Can You Get?

In May 2021, the Australian government extended the Low and Middle-Income Tax Offset (LMITO) to the 2021/22 tax year, a welcome relief for many taxpayers. The LMITO, designed to reduce income tax liabilities, has helped millions of Australians save money on their tax bills. However, not everyone can claim this tax relief, which can be especially confusing for working holidaymakers and backpackers.

This guide will break down Australian tax offsets, who can claim them, and how they work.

What Are Australian Tax Offsets?

Tax offsets in Australia are reductions in the amount of tax you owe based on your income and personal circumstances. Sometimes, they can reduce your tax bill to zero, offering significant financial relief. The LMITO and Low Income Tax Offset (LITO) are two examples of such offsets available to taxpayers.

How Do Tax Offsets Work?

The amount you can claim as a tax offset depends on your taxable income and other factors. If eligible, the offset will reduce your overall tax liability. If your income is too high, you may still be entitled to a partial tax offset, which can reduce the amount you owe. However, tax offsets cannot be used to reduce your Medicare levy.

Claiming Your Tax Offset

To claim your tax offset, you must lodge your tax return before the deadline. The Australian Tax Office (ATO) will automatically assess your eligibility for tax offsets, including LMITO when processing your return.

What is the Low Income Tax Offset (LITO)?

The Low Income Tax Offset (LITO) reduces tax for lower-income earners. Here’s the breakdown of LITO:

• Taxable income up to $37,500: You can claim $700.
• Taxable income between $37,501 and $45,000: You can claim $700 minus 5% of the income exceeding $37,500.
• Taxable income between $45,001 and $66,667: You can claim $325 minus 1.5% of the income exceeding $45,000.
• Taxable income above $66,668: No LITO.

What is the Low and Middle-Income Tax Offset (LMITO)?

LMITO was available for the 2018–19, 2019–20, 2020–21, and 2021–22 tax years. If your taxable income is under $126,000, you can claim all or part of this tax offset.

Here’s the breakdown of LMITO for the 2021/22 tax year:

• Taxable income up to $37,000: You can claim $675.
• Taxable income between $37,001 and $48,000: Claim between $675 and $1,500.
• Taxable income between $48,001 and $90,000: You can claim the full $1,500.
• Taxable income between $90,001 and $125,999: You can claim between $420 and $1,500.

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Cost of Living Tax Offset

In the 2022 Federal Budget, the Australian government introduced a one-off $420 “cost of living tax offset” for the 2021–22 tax year. This effectively increased the maximum LMITO from $1,080 to $1,500.

Can Backpackers Claim LITO or LMITO?

Eligibility for backpackers largely depends on their tax residency status. Citizens from eight countries — including the UK, Germany, Japan, and Chile — may qualify as tax residents while in Australia on a working holiday visa, allowing them to claim both LITO and LMITO. Non-residents, including working holidaymakers from other countries, are not eligible for these tax offsets.

Examples of LMITO and LITO Claims

Example 1: Full LMITO Claim

Jessica, a UK citizen on a working holiday visa, earns $33,000 per year in Australia. Since her income is below the $37,000 threshold, she is entitled to the full LMITO of $675.

Example 2: Partial LMITO Claim

Bertie from Germany earns $47,000 annually. His LMITO claim is calculated as follows:

• $675 + 7.5% of the difference between $47,000 and $37,000.
• 7.5% of $10,000 is $750.
• $675 + $750 = $1,425.

Bertie can claim $1,425 in LMITO, reducing his tax liability.

Claiming Both LITO and LMITO

Both Bertie and Jessica can claim LITO and LMITO. Jessica can claim the full LITO of $700, while Bertie, with an income of $47,000, can claim a partial LITO of $225. This brings Bertie’s total LITO and LMITO tax offsets to $1,650.

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Who Can Help with Australian Tax?

If you’re unsure about your eligibility for tax offsets like LMITO or LITO, Taxback’s team of Australian tax experts can help. They will ensure full compliance with the ATO and help you maximize your tax refund.

The average Australian tax refund is $2,600, so it’s worth exploring all potential tax reliefs available to you.

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