As part of the pre-election budget reading on 29 March 2022, the government declared plans to boost the low and middle-income tax offset (LMITO) by an additional $420. Prior to this, the cost of living offset amount was $1,080. This brings the new total to $1,500 for individuals and $3,000 for couples. The change will take effect from 1 July 2022.
Also referred to as the lamington, this relief has allowed more than 10 million Australian taxpayers that earn less than $126,000 a year to enjoy a more generous tax refund since its introduction in 2018. Unfortunately, the government has also confirmed that this tax cut will come to an end during the 2021-2022 income year. Treasurer Josh Frydenburg has indicated that this offset will apply to tax returns filed this year and that the boosted amount will allow it to come to an end on a high note.
Accounting software provider, ChangeGPS, is advising accountants to be more diligent in informing their clients that the LMITO will come to an end this year. The practice is warning that those that qualify for this relief will be shocked when it no longer applies and realise they are paying an increased tax.
ChangeGPS CEO, David Boyar, is recommending that accountants prepare themselves for unhappy clients who may blame them when this change takes effect. He emphasised the need to proactively communicate with clients that the LMITO was meant to be temporary and that its cessation was because of government policy.
Critics have noted that the cost of living measures mentioned in the budget are one-off and temporary. It was also noted that as the government transitions into its third phase of reforming the tax bracket system, the changes seem to be more favourable to those in the highest income-earning groups.
One of the stage three tax cuts of note is the removal of a tax bracket that will see those earning between $120,000 to $200,000 pay as much as $9,000 a year less in taxes from the 2024-2025 financial year. Consequently, those that earn as little as $45,001 a year may pay the same tax rate as those that take home four times as much in wages.
The Australia Institute’s chief economist, Dr Richard Denniss, has termed the LMITO as modest and temporary, offering immediate relief to low and middle-income earners, while also concealing plans for something more generous and permanent for high-income earners. This is at a time when removal of the LMITO will mean those at lower income levels will end up paying more taxes.
Contact Accountancy Insurance
We would love to hear from you.
About Accountancy Insurance
Thousands of accounting firms offer our tax audit insurance solution, Audit Shield to their clients. Find out why.