Over the past month, many people have been shocked to find their tax refund was smaller than it had been in the past. Back in 2019 or 1 b.c. (before Covid), the government introduced a tax offset called the Low and Middle Income Tax Offset, or LMITO. For four years, this gave individuals with incomes between $37,000 and $126,000 an additional refund of up to $1,500. Now for 2023, the government decided not to renew the expiring LMITO, effectively increasing taxes on the average income earners. If you earn between $37,000 and $126,000 a year, you will be impacted by this change and your refund will be noticeably smaller compared to prior years.
The LMITO was a complicated calculation, with six brackets that sound like “$675 plus 7.5 cents for every dollar above $37,000, up to a maximum of $1,500”. The government’s goal by removing it is to reduce the complexity of understanding and calculating taxes for individuals.
The good news is that the coming Stage 3 tax cuts for 2025 tax returns will cut taxes for individuals in that $37,000 to $126,000 bracket by up to $2,295, even larger than the LMITO. And because this is a genuine tax cut instead of an offset, you will see it in your first paycheque starting 1 July 2024, or just 11 months away!