About 10 million Aussies to be worse off after July 1
About 10 million Aussies will have less disposable income next financial year, with the low and middle income tax offset (LMITO) winding up on June 30.
According to research commissioned by The Age and The Sydney Morning Herald, and undertaken by the Bankwest Curtin Economics Research Centre, 3.4 million Australians will be $1080 worse off while a further 7 million will have less take-home pay.
The net loss is the result of the LMITO coming to an end this financial year.
The LMITO provides an offset of up to $255 for those earning $37,000 or less; $255 (plus 7.5% of the portion of your taxable income that exceeds $37,000) for those earning $37,001 - $48,000; $1,080 for those earning $48,001 - $90,000; and $1080 (minus 3% of the portion of your taxable income that exceeds $90,000) for those earning $90,001 - $126,000.
The LMITO had been extended to the financial year 2020-21 as part of the government's decision to accelerate the start of stage two tax cuts.
The stage two cuts also included lifting the low income tax offset (LITO) from $455 to $700, raising the upper threshold for the 19% tax bracket from $37,000 to $45,000, changing the 32.5% tax bracket from $37,001-$90,000 to $45,001-$120,000 and raising the lower threshold for the 37% tax bracket from $90,001 to $120,001.
The extension of the tax offset overlapped with the introduction of the phase two income tax cuts. So in a way, that overlap could also be viewed as a one year tax increase rather than a tax cut next year.
"They brought forward proposed tax cuts due to covid, to July 1 2020, and effectively it was going to replace the low income tax offset (LITO) and low to medium income tax offset," says Adrian Raftery from the accounting and tax service Mr Taxman.
"So it's essentially a $1080 bonus this year, rather than people losing it next year."
Aussies pulling in $80,000 a year will be left with a net income of $63,013 this year, but next year will only take home $61,933, according to Bankwest Curtin Economics Research Centre. It will lift again to $62,808 in financial year 2024-25 with the introduction of stage three tax cuts.
This stands in contrast to people earning $250,000, who will pay $9075 less in tax than they did this year.
The end of the LMITO will be felt most by women due to them being more likely to earn less than $126,000 annually.
"The withdrawal of the low and middle-income tax offset from 2021-22 will disproportionately affect women, who will face an average increase in taxes paid of $502 per year from 2021-22 to 2023-24, relative to 2020-21," say Rebecca Cassells and Alan Duncan, both from the Bankwest Curtin Economics Research Centre.
"For men, the average annual increase in taxes paid will be lower, at around $385 per year."
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