Low income off sets - LMITO retained for 2021-22 (no changes to individual tax rates)
The Government announced in the Budget that the low and middle income tax offset (LMITO) will continue to apply for the 2021-22 income year. Otherwise, the LMITO was legislated to only apply until the end of the 2020-21 income year, with the result that low-to-middle income earners would have seen their tax refunds in 2022 cut by between $255 and $1,080 (for incomes up to $90,000 but phasing out up to $126,000).
Low and middle income tax offset for 2021-22 (unchanged from 2020-21)
Taxable income (TI) = Amount of offset:
- $0 – $37,000 = $255
- $37,001 - $48,000 = $255 + ([TI – 37,000] Å~ 7.5%)
- $48,001 - $90,000 = $1,080
- $90,001 - 126,000 = $1,080 – ([TI – 90,000] Å~ 3%)
- $126,00 + = Nil
The amount of the LMITO is $255 for taxpayers with a taxable income of $37,000 or less. Between $37,000 and $48,000, the value of LMITO increases at a rate of 7.5 cents per dollar to the maximum amount of $1,080. Taxpayers with taxable incomes from $48,000 to
$90,000 are eligible for the maximum LMITO of $1,080. From $90,001 to $126,000, LMITO phases out at a rate of 3 cents per dollar.
Consistent with current arrangements, the LMITO will be received on assessment after individuals lodge their tax returns for the 2021-22 income year.
Low income tax off set
The low income tax offset (LITO) will also continue to apply for 2021-22 income year. The LITO was intended to replace the former low income and low and middle income tax offsets from 2022-23, but the new LITO was brought forward in the 2020 Budget to apply from the 2020-21 income year.
The maximum amount of the LITO is $700. The LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
Self-education expenses: $250 threshold to be removed
The Government will remove the exclusion of the first $250 of deductions for prescribed courses of education. The first $250 of a prescribed course of education expense is currently not deductible. The measure will have effect from the first income year after the date of assent to the enabling legislation.
Primary 183-day test for individual tax residency
The Government will replace the existing tests for the tax residency of individuals with a primary “bright line” test under which a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident.
Individuals who do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria.
Medicare levy low-income thresholds for 2020-21
For the 2020-21 income year, the Medicare levy low-income threshold for singles will be increased to $23,226 (up from $22,801 for 2019-20). For couples with no children, the family income threshold will be increased to $39,167 (up from $38,474 for 2019-20). The additional amount of threshold for each dependent child or student will be increased to $3,597 (up from
$3,533).
For single seniors and pensioners eligible for the seniors and pensioners tax offset (SAPTO), the Medicare levy low-income threshold will be increased to $36,705 (up from $36,056 for 2019-20). The family threshold for seniors and pensioners will be increased to $51,094 (up from $50,191), plus $3,597 for each dependent child or student.
The increased thresholds will apply to the 2020-21 and later income years.
Child care subsidies to change 1 July 2022
The Budget confirmed that the Government will make an additional $1.7 billion investment in child care. The changes will commence on 1 July 2022 (ie not in the next financial year).
Commencing on 1 July 2022, the Government will:
- increase the child care subsidies available to families with more than one child aged 5 and under in child care by adding an additional 30 percentage point subsidy for every second and third child (stated to benefit around 250,000 families);
- remove the $10,560 cap on the Child Care Subsidy (stated to benefit around 18,000 families).
The Treasurer states that, under the Government’s changes, a single parent on $65,500 with two children in five days of long day care who chooses to work a fifth day will be $71 a week better off compared to the current system. He further states that, under these changes, a family earning $110,000 a year will have the subsidy for their second child increase from 72% to 95%, and would be $95 per week better off for 4 days of care.
