Explanatory Memorandum
(Circulated by authority of the Assistant Treasurer, Minister for Housing and Minister for Homelessness, Social and Community Housing, the Hon Michael Sukkar MP)Chapter 6 - Low and Middle Income tax offset
Outline of chapter
6.1 Schedule 6 to the Bill extends the operation of the low and middle income tax offset to cover the 2021-22 income years.
6.2 The low and middle income tax offset was previously legislated to cease being available after the 2020-21 income year. However, Schedule 6 to the Bill retains the low and middle income tax offset for an additional year (the 2021-22 income year). The low and middle income tax offset will cease to be available from the 2022-23 income year onwards.
Context of amendments
Tax offsets
6.3 The income tax law provides for a number of tax offsets - being reductions in the income tax otherwise payable by taxpayers that satisfy specified requirements. Many tax offsets are contained in Division 61 of the ITAA 1997.
6.4 Currently sections 61-105 and 61-107 of the ITAA 1997 provides an income tax offset for low and middle income earners - commonly referred to as the low and middle income tax offset - which is available in the 2018-19, 2019-20 and 2020-21 income years. The offset was previously legislated to be available in the 2021-22 income year but was removed as part of broader changes to personal income tax rates in the Treasury Laws Amendment (A Tax Plan for COVID-19) Act 2020 that resulted from the bringing forward of Stage 2 of the Government's Personal Income Tax Plan.
6.5 The amount of the low and middle income tax offset is:
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- for taxpayers with taxable income not exceeding $37,000 - $255;
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- for taxpayers with taxable income exceeding $37,000 but not exceeding $48,000 - $255 plus 7.5 per cent of the amount of income that exceeds $37,000;
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- for taxpayers with taxable income exceeding $48,000 but not exceeding $90,000 - $1,080; and
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- for taxpayers with taxable income exceeding $90,000 but not exceeding $126,000 - $1,080 less 3 per cent of the amount of income that exceeds $90,000.
6.6 Entitlement to the low and middle income tax offset is in addition to the low income tax offset which is provided for in sections 61-110 and 61-115 of the ITAA 1997 and is available in the 2020-21 income year and later income years.
Summary of new law
6.7 Schedule 6 to Bill amends the income tax law to make the low and middle income tax offset available during the 2021-22 income year. The amendments provide that the offset will cease to be available in the 2022-23 income year and later income years.
Comparison of key features of new law and current law
| New law | Current law |
| The low and middle income tax offset (set out in existing sections 61-105 and 61-107 of the ITAA 1997) is available in the 2021-22 income year and is not available in the 2022-23 income year or later income years. | The low and middle income tax offset (set out in existing sections 61-105 and 61-107 of the ITAA 1997) is not available in the 2021-22 income year or later income years. |
Detailed explanation of new law
6.8 Schedule 6 to the Bill amends the income tax law to retain the low and middle income tax offset for the 2021-22 income year. This is achieved by delaying the commencement of the repeal of the offset until 1 July 2022. The offset will not be available in the 2022-23 income year or later income years. [Schedule 6, items 1 and 2, subsection 2(1) and item 27 of Schedule 1 to the Treasury Laws Amendment (A Tax Plan for COVID-19) Act 2020]
Application and transitional provisions
6.9 The amendments to extend the low and middle income tax offset apply to the 2021-22 income year. The low and middle income tax offset is repealed on 1 July 2022 and the repeal applies to the 2022-23 income year and later income years.