The Low and Middle Income Tax Offset

Last year, many Australians were confused by the “low and middle-income tax offset”. The good news is that not only was it extended to FY 2019/20 but that it will also be available for FY 2020/21.

In case you’re confused by the concept or your circumstances have changed, we’re providing an update on this popular tax offset and what you need to do about it.

 

What is the Middle Income Tax Offset?

Calculated based on your taxable income, the offset is applied to the amount of tax you owe. Essentially it works to reduce your tax bill. It is not a “refund” in the sense that it cannot reduce your tax owing to less than $0.

 

How does it work?

Once you have lodged your tax return, your tax payable is calculated based on your taxable income. If your taxable income falls within a certain amount, the tax offset (all or part) will be applied to your tax return and you’ll be required to pay less tax (if any).

For example, if your tax return indicates a tax payable amount of $1000 and you are eligible to receive the full $1080 middle-income tax offset, this will reduce your tax payable to $0 and you will not pay tax this year.

 

Am I eligible?

As part of lodging your tax return, you may be eligible for both the low-income tax offset and the low and middle-income tax offset.

Keep in mind that you are only required to pay tax if you earn $18,201 or more. If you earn less than this and have paid tax, you will generally receive all your tax back (and it, therefore, cannot be offset).

If you earn more than this, your tax payable is calculated based on your taxable income and the offset is then applied.

Note again that depending on your income, you may be eligible for both of the offset categories. See our table below for a simplistic demonstration:

Middle Income Tax Offset Table

How do I apply for the tax offset?

This is possibly the best part: there’s nothing specific you need to do. It will be considered automatically as part of your tax return when you lodge it. The offset is simply calculated based on your taxable income and applied to your tax payable.

So if there’s one thing you need to do, it’s lodge your tax return!

If you have any questions at all, do not hesitate to contact our team of professionals on 07 5593 6060 as we are here to help you.