If you worked in any of these countries, you could be due a Tax Refund

Can backpackers claim the Low and Middle Income Tax Offset (LMITO) on their 2021/22 Australian tax return?


In May 2021, The Australian government confirmed that the Low and Middle Income Tax Offset would be extended to apply to the 2021/22 tax year.

This was indeed welcome news for many taxpayers down under as the LMITO can be used to reduce an individual’s income tax liability.

However, not every worker in Australia is entitled to claim this tax relief. And it can be particularly confusing for working holidaymakers and backpackers to determine whether they can claim the LMITO.

So with all of that said, in this guide, we are going to take a closer look at Australian tax offsets and outline what they are, who can claim them and how to do so.

So, what are Australian tax offsets?

Simply put, Australian tax offsets reduce the tax you are required to pay on your income. They can even potentially reduce your tax liability to $0… not bad!

How do tax offsets work?

Exactly how much you can claim will depend on your specific personal circumstances – such as your total taxable income.
For example, if you are entitled to claim the full tax offset, this amount is subtracted from your tax bill. You will then only need to pay the reduced amount of tax.
Meanwhile, if you earn too much money to claim the full offset, you may still be entitled to claim a partial amount which can also be used to reduce your tax liability.
Note: tax offsets can’t be used against your Medicare levy.

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How do I claim my tax offset?

You can avail of your tax offset by lodging your Australian tax return before the deadline.
The ATO will automatically work out if you’re eligible when they process your tax return. You do not need to inform them that you wish to claim an offset.


What is the Low Income Tax Offset?

The Low Income Tax Offset (LITO) helps lower income earners to save some money by reducing the amount of tax they pay.
Taxpayers can claim LITO as per the below rates.

Taxable income LITO
$37,500 or less $700
$37,501 – $45,000 $700 less 5% of the portion of your taxable income that exceeds $37,500
$45,001 – $66,667 $325 less 1.5% of the portion of your taxable income that exceeds $45,000
$66,668 and above Nil

What is the Low and Middle-Income Tax Offset? Can I claim it?

The Low and Middle-Income Tax Offset can be used to reduce your income tax liability.
It is available for the 2018–19, 2019–20, 2020–21 and 2021–22 tax years and can be claimed if:

  • you are an Australian resident for tax, and
  • your taxable income is in the appropriate income range

The base amount for the 2021-22 income year has increased to $675 and the full amount is $1500. If your taxable income is less than $126,000, you will get some or all of the LMITO

Is the Low Income Tax Offset the same as the Low and Middle Income Tax Offset?

The Low Income Tax Offset and the Low and Middle Income Tax Offset are both operating concurrently and taxpayers may be eligible for both LITO and LMITO.
The Australian government introduced the LMITO as a temporary for the 2018 – 2022 tax years.


Who can claim the LMITO?

Eligibility for the LMITO depends primarily on taxable income.
In short, you will be entitled to at least some of the LMITO if your taxable income is equal to or below $126,000.


How much is the LMITO?

The below table outlines the offsets which can be claimed by taxpayers.

Taxable income Value of tax relief
Up to $37,000 $675
$37,001 to $48,000 Between $675 and $1,500
$48,001 to $90,000 $1,500
$90,001 to $125,999 Between $420 and $1,500


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What is the cost of living tax offset?

As part of the 2022 Federal Budget, the Australian government announced a one-off $420 ‘cost of living tax offset’ for 2021-22, which effectively increased the maximum offset for the LMITO from $1,080 to $1,500.

Can backpackers claim the LITO or LMITO?

The answer to this question very much depends on each individual backpacker’s tax residency status.
In late 2021, the Australian High Court ruled that citizens of eight countries could potentially be considered residents for tax purposes while in Australia on a working holiday visa. The eight countries in question were the UK, Germany, Finland, Chile, Japan, Norway and Turkey.
If a backpacker is considered to be a resident for tax purposes, they can potentially claim both the LITO and LMITO
However, working holidaymakers who are considered non-residents (including citizens not from the eight countries listed above) can not avail of these tax reliefs.

How can a working holidaymaker claim the Low and Middle Income Tax Offset?

Similarly to Australian citizens, backpackers do not need to claim the LMITO. Provided you are a resident for tax purposes, this tax relief will be applied automatically by the ATO when they lodge their tax return.


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Let’s take a look at some case studies

The full LMITO amount

Jessica is a UK citizen who travelled to Australia on a working holiday visa. Today she works with a marketing agency in Sydney and earns $33,000 per year. Therefore, as her income is below the $37,000 threshold and she is entitled to the full LMITO amount - $675.

Claiming a partial LMITO amount

Bertie travelled from Germany to Australia on a working holiday visa. He works as an IT professional in Brisbane. His yearly taxable income is $47,000.
As a result, he is not entitled to claim the full LMITO amount. Instead, the amount he can claim will be calculated as per the below.

  • $675 + 7.5% of the difference between $47,000 (Barry’s earnings) and $37,000 - $10,000
  • 7.5% of $10,000 is $750.
  • $675 + $750 = $1,425.

So a total of $1,425 will be subtracted from Bertie’s income to reduce his tax bill.

Claiming both LITO and LMITO

In addition to the LMITO, both Bertie and Jessica from the above examples would also be entitled to claim the LITO.
Jessica earns $33,000 per year. She can therefore claim the full LITO amount of $700. This is addition to the $675 LMITO amount mentioned above.
Meanwhile, Bertie earns $47,000 each year. His LITO entitlement will be calculated as per the below.

  • $700 – 5% x $47,000 (Barry’s income) – $37,500
  • 5% of $9,500 is $475
  • $700 – $475 = $225

Bertie can add his partial LITO of $225 to the $1,425 amount of LMITO, for total LITO and LMITO offsets of $1,650.

Who can help backpackers with Australian tax?

Taxback.com have been the Australian tax experts for more than 25 years.
If you would like to ensure that your Australian tax return is completed correctly, you should file with Taxback.com.
Our specialist Australian tax team guarantee full tax compliance with the ATO and will ensure that you receive every tax relief and credit you’re entitled to – including the LMITO.
We will also ensure that you receive your maximum Australian tax refund. Our average Australian refund is $2,600. To find out how much you can claim, simply complete the short form here.

About The Author

Mark Corcoran - Digital Content Executive @ Taxback.com

Mark is the Digital Content Executive at Taxback.com. Since graduating from Griffith College Dublin with a degree in Journalism and Visual Media, his work has been published both in print and online.

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