Treasurer Josh Frydenberg on Tuesday announced that the low and middle-income tax offset (LMITO) would be extended for a further year at a cost of $7.8 billion.
The government, however, will not seek to bring forward its legislated stage 3 tax cuts, which are meant to kick in from 1 July 2024, with 95 per cent of taxpayers to face a marginal tax rate of 30 per cent or less.
The LMITO provides individuals with taxable incomes between $48,000 and $90,000 with a maximum offset of $1,080. Taxpayers earning less than $37,000 will see a benefit of up to $255.
Those earning between $90,000 and $126,000 will see the offset phase out at a rate of 3 cents a dollar.
“This is more money to spend in local businesses, giving them the confidence to take on an extra worker, offer an extra shift or buy a new piece of equipment,” Mr Frydenberg said.
The extension of the LMITO for a further 12 months comes after the government announced a similar extension in its October federal budget last year despite backdating its stage 2 tax cuts to 1 July 2020.
Mr Frydenberg stressed that the extension of the offset was a product of the state of the current economy and should not be viewed as a permanent feature of the tax system.
“I want to make it very clear that this year’s LMITO is designed as a stimulus measure,” he said.
“It is not a permanent feature of the tax system; it is designed as a stimulus measure because we are not out of the pandemic yet and we need to boost aggregate demand as we did last year.”
CPA Australia’s general manager of external affairs said the extension of the LMITO was a sensible move amid ongoing uncertainty.
“The LMITO is essentially a proxy stimulus payment and pay rise for low-income earners,” Dr Jane Rennie said. “It makes good sense to extend it at a time of ongoing economic uncertainty and sustained low wages growth.
“Extending the LMITO for another year will increase consumer confidence and consumption. We need people to keep spending to maintain Australia’s economic recovery, so we’re pleased to see this measure in the budget.”
Are you thinking of expanding your offering into SMSFs to grow your client base? Become a pro at SMSF fundamentals and make your clients bulletproof with the SMSF Foundations course. Learn directly from Aaron Dunn from Smarter SMSF as he deep-dives into the fundamentals you need to know to successfully undertake your work as an SMSF practitioner. Earn up to 21 CPD hours! Learn more
Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.