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What is the $1,500 low and middle income tax offset and how will it affect my tax return in 2023?

As you may have heard through various news channels and articles, millions of Australians are due to feel a sharp increase in their taxes which will results in lower tax returns in 2023. Why? Because the generous low and middle income tax offset (LMITO) of up to $1,500 has expired and will not be available for the 2023 financial year.

It’s important to note that there is a difference between the low income tax offset (LITO) which is still available and the low and middle income tax offset (LMITO) which has expired.

Overview of the low and middle income tax offset (LMITO)

The low and middle income tax offset (LMITO) is a tax benefit that has been available to eligible Australian taxpayers since 2018.

Taxpayers earning between $37,00 and $126,000 for the 2021-22 financial year were able to benefit from this offset for an amount of up to $1,500. However, this offset is no longer available for the 2023 financial year, as you might have heard from media outlets throughout Australia, and in turn, this will lead to smaller tax returns for millions of individuals and sole traders compared to last year.

Overview of the low income tax offset (LITO)

The low income tax offset (LITO) has been available for many years, is still available, and has not expired like the LMITO. This tax offset will still provide some relief to those who earn less than $66,667 for the 2022-23 financial year.

Eligible taxpayers can claim the LITO when they file their tax returns. For the 2022-23 financial year, the maximum LITO is $700.

Table Showing estimated decline in tax refund for the 2023FY due to the expiry of the low and middle income tax offset.

(If you use your car a lot for work related or business related purposes. You only have April to June to do it for the 12 weeks required.)

Keeping track of your business or work-related car expenses with the logbook is simple. It could increase your tax deductions and therefore improve your tax position or tax refund.

Using your car for work purposes and travel more than 5000km for work, will often mean the best way to claim these expenses is using the logbook method.

If you travel less than 5000km per year for work, then you are often better claiming the ‘Cents per KM’ method.

In any case you need to keep a record, so a logbook will work in making a car deduction claim.

The purpose of a logbook is to determine your business usage of your motor vehicle and the number of business kilometres you use.

If we work out your work usage is 60% of the overall usage of your car, we can then claim 60% of your fuel, rego, insurance, tyres, repairs, depreciation, interest on car finance, etc.

An example would be if it costs $10,000 to operate your car, you can claim $6,000 as a tax deduction. BUT, you need a log book to do this. The maximum claim under the rate per kilometre method of 5,000 kilometres is $3,600.

Instructions to complete your car logbook

You need to keep a logbook for a 12-week period. These must be 12 consecutive weeks (i.e., 12 weeks in a row).

Your logbook must include every trip you take – not just your business related trips.

Your logbook must contain:

• Speedo reading on 30 June each year.
• the make, model, engine capacity and registration number of the car.
• the car’s speedo readings at the start and end of the 12-week period.
• the number of kilometres travelled for each journey. If you make two or more journeys in a row on the same day, you can record them as a single journey.
• the business-use percentage for the logbook period.

For each journey, record the:

• start and end date of the journey.
• speedo readings at the start and end of each journey
• reason for the journey (such as a description of the business reason or whether it was for private use)
• kilometres travelled on each journey.
• The odometer reading at 30 June each year.

You do not need to record any private journeys. Write down the date and speedo when you get in the car. Do your work travel. When your trip is complete, record the speedo reading again. Record the purpose you travelled. (Usually travelling to and from work is private).  However going to a number of work places in a day, carrying heavy equipment and some other circumstances may allow these journeys to be deductible. 

Contact our office on 4773 4088 if you need further advice.