The Albanese government recently revealed the beloved low and middle-income tax offset is ending, causing panic for many Australian citizens that have previously used the offset.
We’ve compiled the following guide to provide you with some much-needed insight into the end of the tax cut and how it will affect Australians.
Why The Tax Cut Was So Important
The Low and Middle-Income Tax Offset (LMITO) was a massive help to those earning under $126,000 per year. Last year, tax rebates up to $1,500 were delivered to anyone making less than the specified amount, considerably helping those on low and middle income.
The cut was excellent as it directly benefited low and middle-income earners, ensuring those who needed financial help received it without rewarding high earners. So, those in low and middle tax brackets could claim back some of their hard-earned cash, while high earners still needed to pay their usual tax amount.
How Does Australia’s Tax Bracket System Work?
If you earn $18,200 or under, the government won’t touch your money, meaning this bracket is tax-free. From here, you’ll need to pay taxes on what you earn, but that doesn’t equate to you being worse off.
Let’s break down each tax bracket;
- The government takes 19% of earnings $18,200 – $45,000
- The government takes 32.5% of earnings $45,000 – $120,000
- The government takes 37% of earnings $120,000 – $180,000
- The government takes 45% of earnings of $180,000 and over
It’s essential to remember that tax percentages reflect earnings, and despite percentages rising, your take-home pay will still be higher than lower brackets even with a higher percentage of tax.
Why The LMITO Reflected The Tax Bracket System Perfectly
The LMITO was a clever way of helping those in need without changing the entire tax system. Instead of cutting tax percentages that would affect all brackets, the offset refunded low-income earners after June 30th for the taxes they already paid.
The tax cut directly reflected the needs of those struggling financially whilst ensuring high earners still pay the same tax percentage, providing a less expensive way for the government to help those on low incomes.
Other Available Help For Low-income Earners
Although it’s a shame that the LMITO is ending, other financial aid is available for low-income earners, such as the LITO. With the low-income tax offset, $700 is paid to those earning up to $37,000, with offsets lowering if you earn over this amount.
Need Advice On Handling Taxes? We Can Help
We understand the LMITO ending is stressful for many, and we offer accounting services and business advice to help see you through these challenges. Contact us today to find out more.