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Rands Tax & Business Consultants

Expect to Pay Tax in 2023

The End of LMITO Means No More Refunds

“Prepare for Changes in Your Tax Refund: The Low and Middle Income Tax Offset (LMITO) that once provided a boost to refunds for Australians bids farewell in 2022-23. As we explore the impact of this change, learn how LMITO worked, boosted tax refunds, and how it affects taxpayers like Sophie in our case study.”

1. Farewell to the Tax Boost: LMITO Ends in 2022-23

“Say goodbye to the tax boost! The low and middle income tax offset (LMITO) that boosted refunds for Aussies has come to an end. Introduced in 2018-19 and increased in 2021-22 with a ‘cost of living tax offset,’ it won’t be available from 2022-23. While your monthly paycheck won’t be affected, if you previously benefited from LMITO, you’ll now pay more tax overall and receive a smaller tax refund at tax time.”

2. Understanding LMITO: How It Boosted Tax Refunds

From 2018-19 to 2021-22, eligible Australian residents earning less than $126,000 annually could claim the LMITO. However, it’s essential to clarify that the LMITO wasn’t given as a lump sum or cash payment. Instead, it worked as a tax offset, reducing the total tax payable at the end of the financial year. If you didn’t pay any tax, you couldn’t benefit from the offset. But if you did pay tax, the LMITO likely contributed significantly to boosting your tax refund in those recent years.

3. Meet Sophie: A Case Study on LMITO

Meet Sophie! From 1 July 2021 to 30 June 2022, her income was $ 64,000. Her employer deducted $ 12,287 in tax throughout the year and sent it to the ATO. As Sophie’s taxable income falls between $48,000 and $90,000, she qualifies for the $ 1,500 tax offset. This reduces her tax payable to $ 10,787 but she already paid 12,287. The difference of $1,500 significantly boosted Sophie’s tax refund.

4. The End of LMITO: Impact on Tax Payable and Refunds

Starting from the 2022-23 income year (1 July 2022 – 30 June 2023), the low and middle income tax offset has been discontinued. As a result, your tax payable will be calculated without any reduction, meaning you’ll pay more tax than in previous years. This change affects millions of Australians who received the offset and enjoyed larger tax refunds in 2020, 2021, and 2022.

As the Low and Middle-Income Tax Offset (LMITO) ends in the 2022-23 financial year, Australians may experience smaller or no tax refunds. Understanding LMITO’s impact on tax refunds is crucial, but navigating these changes smoothly can be challenging without expert guidance. Rands Tax & Business Consultants can help you effectively manage your tax payable, explore suitable payment plans, and ensure a seamless approach to your tax obligations.

Our expertise as CPA management accountants equips us to assist small business owners in Berwick, Narre Warren, and Pakenham with their financial management needs. Let us be your trusted partner in managing your finances, so you can focus on driving your small business forward.

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