During the 2019–20 Federal Budget the Government announced its desire to change the policy regarding Personal Income Tax. Recently, it was announced that these changes have been passed through and are law as a new income tax offset.
So, what will this mean for you? And what is a tax offset in the first place?
What is an Income Tax Offset?
If you’re an Australian resident for income tax purposes and you pay tax on your income, you may be eligible for both the:
- Low income tax offset
- Low and middle income tax offset
Tax offsets are great because they can help to reduce the amount of tax you pay on your taxable income.
Deductions are different because they are taken off your income BEFORE your tax is worked out, rather than after. This can make a big difference in your tax return.
Note: The new tax offset does not impact the Medicare levy.
What are the changes?
According to the ATO website, from the 2018–19 income year:
- The low and middle income tax offset increases from a maximum amount of $530 to $1,080 per annum and the base amount increases from $200 to $255 per annum.
No, this does not mean that you will be receiving an extra $1080 in your tax return as a refund. Although that would be wonderful wouldn’t it!?
However, due to the revised offsets, taxpayers with a taxable income:
- of $37,000 or below can now receive a low and middle income tax offset of up to $255 (in addition to the low income offset of $445)
- above $37,000 and below $48,000 can now receive $255, plus an amount equal to 7.5% to the maximum offset of $1,080
- above $48,000 and below $90,000 are now eligible for the maximum low and middle income tax offset of $1,080
- above $90,000 but is no more than $126,000 are now eligible for a low and middle income tax offset of $1,080, less an amount equal to 3% of the excess.
- Don’t earn an income you can’t receive the income tax offset
- Have an unused amount of the offset it is not refunded to you
If you’re still a bit unsure about whether you are entitled to the offset and how it all works, don’t stress. That is why we have our expert team of accountants.
We can work it out for you when you come in and lodge your tax return.
If you have any questions about the new income tax offset or would like to book your appointment, please give us a call on (03) 9762 7344.