Federal budget 2021-2022


2022 Extension of tax compensation for low and middle income families

As widely anticipated, the Low and Middle-Income Tax Offset (LMITO) will be extended for one year. LMITO is offering a tax reduction of up to $1,080 for taxable income up to $126,000 and will be withheld for 2021-2022.

Offset of taxable income

  • $37,000 or less with an offset of $255
  • Between $37,001 and $48,000 with an offset of $255 plus 7.5 cents for every dollar over $37,000, to a maximum of $1,080
  • $48,001 and $90,000 with an offset of $1,080
  • Between $90,001 and $126,000 with an offset of $1,080 less 3 cents for every dollar over $90,000

The tax offset activates when the taxpayer submits the tax return.

Medicare low levy income limit

Effective date: July 1, 2020

The government will increase Medicare tax limits for singles, families, seniors, and retirees starting July 1, 2020, to reflect recent movements in the CPI, so low-income taxpayers will generally stay exempt from paying Medicare taxes.

  • Single is $22,801 for 2019-2020 and $23,226 for 2020-2021
  • Family threshold is $38,474 for 2019-2020 and $39,167 for 2020-2021
  • Single seniors and pensioners is $36,056 for 2019-2020 and $36,705 for 2020-2021
  • The family threshold for seniors and retirees is $50,191 for 2019-2020 and $51,094 for 2020-2021

For each student or dependent child, the family income limit increases by an additional $3,597 instead of the previous $3,533.

Elimination of the reduction in self-education fees of $250

Date of entry into force: the first financial year following the date of the Royal Assent of the enabling legislation.

Currently, people claiming a deduction for self-education expenses sometimes have to reduce the deductible amount to $250. The rules and regulations in this area are a bit complex, as they only apply to self-education expenses that fall into a specific category and are safe. A reduction of $250 may offset Non-deductible expenses. This will eliminate the reduction, which should facilitate the calculation of deductions for self-study.

Increase the childcare subsidy for families with children under 5 in child care

Effective date: July 1, 2022

From July 1, 2022, the government will:

  • Increase child care benefits available to families with more than one child aged five or under in child care, and
  • Eliminate the child care subsidy of $10,560.

For families with more than one child in child care, the receivable allowance will be up by 30% up to a maximum of 95% of the school fees paid for the second child and the following ones (tapered by income and hours of care).

Under the current system, the maximum childcare allowance payable is 85% of the childcare tariffs and applies at the same rate per child, regardless of the number of children a family may have in care.

Why? In October 2020, an analysis by the Grattan Institute found that mothers lose 80%, 90%, and even 100% of their wages at home to work on the fourth or fifth day after the extra costs of kindergarten, recovery of the daily allowance, and taxes, and changes in benefits are taken into account.

Unsurprisingly, many don’t think the option of working for free or in close proximity isn’t particularly appealing. The “1.5 earners” model has become the norm in Australia. And Australia’s part-time employment rates for women are the third highest in the OECD.

Childcare costs are the main factor contributing to these “workforce disincentives.” The maximum allowance is not high enough for low-income families, and the annual reduction and ceiling encourage them to work more than three days across the entire income bracket.

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