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How Much Tax Refund You’ll Get With Backdated Tax Cuts in 2021

6 min read
Here are two words everyone loves to hear: tax cuts. Paying less tax (and having more of your hard-earned money stay in your pocket) is always a reason to celebrate, and the low and middle income earner tax offsets will help you do just that.
 
All you need to do to qualify is to earn under a certain income threshold and you’ll be entitled to this benefit, which will immediately increase the amount of tax refund you receive.
 
When was this tax cut first implemented? 
This offset was created by the Australian government  a few year ago and has recently been extended to apply to the year ended 30 June 2021.
 
Who’s eligible for this tax cut? 
There are actually two tax cuts on offer here: a low income offset, and also a low and middle income offset. Some people in the low income brackets will be eligible for both, and the amount of offset depends on how much you earn. Anyone receiving JobKeeper is also covered by this scheme.
 
But it’s important to note that the low income tax offset and the low and middle income tax offsets can only reduce the tax you pay to $0, which means any offset amount that remains once your tax payable is zero doesn’t get refunded to you.
 
For the low income tax offset:
 
If your taxable income is: You’ll get:
$37,500 or less The full offset of $700
Between $37,501 and $45,000 $700 minus 5 cents for every $1 above $37,500
Between $45,001 and $66,667 $325 minus 1.5 cents for every $1 above $45,000
 
For the low and middle income tax offset:
 
If your taxable income is: You’ll get:
$37,000 or less $255
From $37,001 to $48,000 $255 plus 7.5 cents for every dollar above $37,000, up to a maximum of $1,080
From $48,001 to $90,000 $1,080
From $90,001 to $126,000 $1,080 minus 3 cents for every dollar of the amount above $90,000
 
 
So what does this look like in real life? 
Good question! Here are a couple of sample scenarios to help you understand how it works:
 
Case study 1: 
Pietra is a teaching assistant who earns $17,500 a year. She didn’t pay any tax because her income is under the tax-free threshold. Her income is also less than the $37,000 mark, so she’s eligible to a low and middle income tax offset amount of $255. She is also eligible to a low income tax offset amount of $700.
 
Pietra is eligible for the two offsets – but as she did not pay any tax, her tax payable can't be reduced any lower than $0. The low and middle income tax offset and low income tax offset are non-refundable tax offsets so the unused offset can't be refunded. Her tax payable remains at $0 and she does not receive a tax refund.
 
Case study 2: 
Bill is a marketing manager with a taxable income of $42,000, which means he’s eligible for both the low income tax offset AND the low and middle income tax offset.
 
His income exceeds $37,500 but isn’t over $45,000, so he’s eligible for a low income tax offset amount of $700 minus 5 cents for every dollar his income is above $37,500:
 
$42,000 − $37,500 = $4,500
$4,500 × $0.05 = $225
$700 − $225 = $475
 
As Bill’s income is between $37,000 and $48,000, he’s also eligible for a low and middle income tax offset amount of $255 plus 7.5 cents for every dollar his income is above $37,000:
 
$42,000 − $37,000 = $5,000
$0.075 × $5,000 = $375
$255 + $375 = $630
 
Bill’s tax payable can be reduced by up to $1,105 ($475 + $630 = $1,105) using both the low income tax offset and low and middle income tax offset.
 
So how do I get this extra tax refund? 
It’s easy! Just lodge a tax return (in person on online) with H&R Block and our expert tax consultants will make sure you get every dollar you’re entitled to claim.
 
The deadline to lodge your taxes is October 31st if you do it yourself and later if you work with a tax agent – and, the sooner you get it done, the sooner you’ll get your refund!
 
It’s also worth remembering that missing the deadline can result in a Failure to Lodge (FTL) penalty from the ATO, which increases with time. So, get it done as soon as possible and you’ll enjoy both an increased tax refund and no unwelcome fines.
 
Once you have your (increased) tax refund, there are so many smart ways to use it including: 
  • Paying off outstanding credit card, bank loans or bills
  • Starting or adding to an emergency fund
  • Boosting your super
  • Setting up a mortgage offset account
  • Investing in shares
  • Donating to a good cause
  • Investing in yourself (through a course or activity)
 



 

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