More than 10 million Australians will receive a tax offset of $1,080, while couples will receive up to $2,160 after the Government passed the cuts this week.
The cuts, first proposed in the May Federal Budget, are effectively an extension of the low- to middle-income tax offset (LMITO) which had been previously scheduled to end in weeks.
The LMITO is granted to Australians earning less than $125,000 a year and offsets the amount of tax those workers pay.
“This year’s LMITO is designed as a stimulus measure, because we’re not out of the pandemic yet and we need to boost demand,” Treasurer Josh Frydenberg said in May.
The LMITO was first introduced in 2018 as a temporary measure until the Coalition government could bring in its broader tax cut scheme. However, it’s been consecutively extended since then.
How big is the offset and when will I receive it?
The offset ranges from $255 for taxpayers earning $18,200 to $37,000, before increasing by 7.5 cents for every dollar earned between $37,000 and $48,000. People earning between $48,001 and $90,000 will receive the full offset.
Then, the offset tapers by 3 cents for every dollar earned up to $126,000.
However, that doesn’t mean taxpayers will automatically receive an extra $1,800 in their tax return.
As an offset, the LMITO simply reduces the amount of tax paid.
“The extra year of LMITO won’t be paid until July 2022, at the earliest, depending on when people submit their 2021-22 tax returns. By then the economy ought to be well over a year out of recession,” the researchers warned.
“Being a delayed payment (it is only paid out as tax refunds after the end of each financial year), it offers anything but real-time support.”
“The LMITO already exists and, has done for many years, so extending it for one year (rather than allowing it to fall away, as was the government’s original intention) should not be seen as a tax cut.
“Nobody should be counting the extra dollars in next year’s pay packets because there aren’t any; the tax burden for low and middle income individuals next year is exactly the same as it was this year.”