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Federal budget: How your tax return will change this year

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Millions of workers can expect to pay more tax this year compared to last year.

The Low and Middle-Income Tax Offset (LMITO) will come to an end this year, as originally planned.

Treasurer Jim Chalmers made no mention of extending the tax offset for this financial year in Tuesday night's 2023 Federal Budget.

It's worth noting that this tax offset was never planned to be extended again this year, despite some whispers that perhaps it would be due to the cost of living crisis.

This means that millions of Australians will likely get less money back in their tax return this year compared to the last 2 years.

What was the LMITO?

You might have noticed a larger tax return than usual the past 2 years.

The LMITO was introduced during the Covid pandemic as an initiative to boost the disposable income of workers and help spur on the economy.

Due to record low inflation and a sluggish economy the offset was extended for the 2021-22 financial year.

The tax offset was was available for workers earning below $126,000 and was automatically applied to your tax return.

The largest tax offset of $1500 was available to workers earning between $48,000 and $90,000.

How much more tax can I expect to pay this year?

It's worth pointing out that you won't actually be paying any extra in tax than you're meant to - you just won't benefit from the tax offset that was put in place temporarily over the last 2 years.

The difference in your tax return this year will depend on how much you're earning.

Here's how much extra tax you can expect to pay this financial year compared to last year due to the removal of the LMITO.

Income Tax increase without the LMITO
$18,000$0 (No tax paid)
$37,000$675
$45,000$1275
$60,000$1500
$80,000$1500
$90,000$1500
$100,000$1200
$120,000$600
$126,000+$0 (Not eligible for offset)

You don't need to do anything special in your tax return. The tax offset was automatically applied in the previous years.

Will the tax offset come back?

There is no plan to bring back this particular tax offset.

However, there are additional tax changes set to come into action from 1 July 2024 that will see millions of Australians pay less tax.

These are known as the stage 3 tax cuts, and they largely benefit high income earners.

These tax cuts will basically remove the $120,001-$180,000 tax bracket entirely, and reduce the 32.5% tax bracket down to 30%.

This means that, as of 1 July 2024, everyone earning between $45,001 and $200,000 will be taxed at the same rate of 30%.

There was no mention of blocking or changing the stage 3 tax cut plan in Tuesday night's Federal Budget, however there is still another year before they're due to commence so we could still see some changes to this yet.

Check out our wrap up of the 2023 Federal Budget to see what changes will impact you. Our cost of living hub has the latest details on inflation, rising rates and tips for how to keep on top of your money right now.

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