House of Representatives

Treasury Laws Amendment (2021 Measures No. 4) Bill 2021

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:

for taxpayers with taxable income not exceeding $37,000 - $255;
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;
for taxpayers with taxable income exceeding $48,000 but not exceeding $90,000 - $1,080; and
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.


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