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Where is my $1,080 refund?

With the Australian media reporting “workers could expect up to $1,080 extra in their wallets from their tax return”, it is understandable that mass confusion has spread.

The $1,080 is not a refund, it is a tax offset.

If you are an Australian resident and pay tax, you are eligible for both the Low income tax offset and Low-and-middle-income tax offset, depending on the level of your taxable income.

What is a tax offset?

A tax offset directly reduces the amount of tax payable. Unlike a tax deduction, which reduces your taxable income upon which the tax payable is calculated.

Example table:

Low income tax offset

The maximum offset of $445 applies if your taxable income is $37,000 or less. This amount is reduced by 1.5 cents for each dollar over $37,000 up until the cut amount of $66,667.

Low-and-middle-income tax offset

The amount of offset you are entitled to depends on your taxable income:

  • If your taxable income exceeds $37,000 but is not more than $48,000, you will be entitled to an offset amount of $255, plus 7.5% of the excess above $37,000
  • If your taxable income exceeds $37,000 but is not more than $90,000, you will be entitled to the maximum offset amount of $1,080
  • If your taxable income exceeds $90,000 but is not more than $126,000, you will be entitled to an offset amount $1,080 less 3% of your taxable income above $90,000
  • Once taxable income is over $126,000 then these offsets are reduced to nil.

The hype around the 2019-20 Federal Budget Government announcement only increased confusion. The offset has been in effect for several years. However, now the offset has increased from a maximum of $530 to $1,080 per year.

Like many tax measures, the applicable sliding scales and thresholds make the offset difficult to report in the media, and as usual the reality often less fabulous than it is presented by government, and in snapshot headlines.

For more information

https://www.ato.gov.au/Tax-professionals/Newsroom/Income-tax/Low-and-middle-income-tax-offset-now-law/

https://www.ato.gov.au/Individuals/Income-and-deductions/Offsets-and-rebates/Low-and-middle-income-earners/