The low and middle-income tax offset (LMITO), also referred to as the lamington offset, is a tax relief that an estimated over 10 million Australian taxpayers have enjoyed since the 2018-2019 financial year. Introduced by the previous Liberal government, it was due to end on 30 June 2022.
The current labour government has confirmed that there are no plans to extend it, meaning that taxpayers that earn up to $126,000 are likely to experience a shortfall of up to $1,500 in tax relief from this year. This initiative has been costing the budget $11 billion a year.
Accountants have been advised to warn their clients that had previously qualified for this relief that it will no longer be available. This means a bigger tax bill for low to middle-income earners. Failure to notify clients of this change may result in their being blamed for the higher tax bills at a time when many are struggling under the higher cost of living pressures.
According to H&R Block’s director of tax communications, Mark Chapman, many people in this category are facing higher mortgage rates, rent, and increased domestic fuel and petrol costs. He recommends that accountants take the lead in notifying or reminding their clients of the end of the LMITO so that they are not blamed when the responsibility should lie with the government.
BDO partner, Mark Pizzacalla, also notes that the end of the tax relief is sure to impact low and middle-income earners who often rely on tax refunds to offset the increased cost of living. He, however, expressed hope that the government’s hinting of renewed targeted cost of living relief that would not increase inflation in their budget may prove helpful in compensating for the loss of the LMITO.
Treasurer Jim Chalmers has said that the Labour government could not afford to extend the tax relief measure but there was the cost of living assistance in the May budget. This includes an allocation of $1.5 billion in electricity bill assistance and efforts by the government to build resilience against international shocks at a time when the global economy is experiencing its slowest growth in three decades.
The Labour government is however facing some criticism for characterising the end of LMITO as a tax increase when it was always intended to be a temporary tax relief that has ended. There is also concern that the budget problem lies not so much in a lower tax intake, but rather in overspending by the government.
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