The Middle-Income Tax Offset – An Explanation

As you may already be aware, as of July 2019, there was a new tax offset available to middle-income earners. This means that people earning an income within a certain range may have been eligible to have their tax reduced by a specific amount. What does this mean for you, and by what amount? Read on for more details.

The basics

This new tax offset applied from July 2019 to middle-income earners in Australia. The aim was to increase take-home pay and is applied from the financial year 2018-19, for four years. Additional changes will be introduced over three stages until 0% tax will apply for those earning less than $41,000 per year.

How does the tax offset affect you?

It is important to understand the difference between “offsetting our tax” and “getting a tax return”. The introduction of the tax offset doesn’t necessarily mean you were owed a tax refund or received any money back.

What it does mean (for those within the applicable income range) is a reduction in the tax you may have been due to pay.

Let’s assume your income is between $48k-$90k. Your tax offset amount is $1,080 (the amount is determined by your income). Without the offset, you may have been due to pay a tax bill of $2,000 (as per your tax return). Because of the introduction of the tax offset, this tax bill was reduced by $1,080 (the “offset”) so your final tax amount was $2000 – $1,080 = $920.

Also, note that the offset applies whether or not you’ve already lodged your tax for 2018-19. If you haven’t yet lodged, the offset will automatically be applied where appropriate (you don’t need to do anything extra to ‘claim’ the offset). If you had already lodged your tax for 2018-19 before the introduction of the offset, the offset may mean you were due a refund – if you paid too much tax. This would apply if you lodged your 2018-19 tax return before July 4, 2019.

What’s next?

We know these types of changes can be confusing (and in this case, the ATO was inundated with calls from people believing they were due $1,080). If you want to talk through your personal situation and discuss how it might affect your tax, give us a call.