Personal Tax Offsets for 2021-2022

The Australian income tax system is quite complex. However, no other taxes are applied to personal income in the country, such as sales or value-added taxes. The only important thing to know is the individual tax rates which are based on your income level. The government has implemented a Personal Income Tax Plan, which is applicable for the next seven years. It is designed to provide tax relief for taxpayers who earn lower incomes.

Dependant (Invalid and Carer) Tax Offset

A taxpayer may be entitled to the Dependent (Invalid and Carer) Tax Offset ('DICTO') broadly if they:

• maintain their spouse, who is an invalid or who cares for an eligible invalid;
• maintain their parent or their spouse’s parent, who lives in Australia and is an invalid or who cares for an eligible invalid; or
• maintain their or their spouse’s invalid child, brother or sister who is aged 16 years or older.
  
  

Note, the ATO generally refers to this offset as the Invalid and Invalid Carer Tax Offset to avoid the impression that it may be claimed with respect to any dependant of a taxpayer.

The maximum offset and adjusted taxable income ('ATI') amounts for 2021/22 are as follows:

1. The offset reduces by $1 for every $4 by which the dependant's ATI exceeds $282 and cuts out if the maximum ATI is reached.
2. To claim the DICTO for a dependant other than a spouse, the combined ATI of the taxpayer and their spouse (if applicable) must not exceed $100,900. If claiming for a spouse, the taxpayer’s ATI must not exceed $100,000. An individual's ATI includes their taxable income and any adjusted fringe benefits total, tax-free pensions or benefits, target foreign income, reportable superannuation contributions and total net investment losses, less any deductible child maintenance expenditure for the year.
   
   

Notionally Retained Dependant Tax Offsets

The following tax offsets have been abolished, but have been notionally retained for other purposes (e.g., for calculating a taxpayer's entitlement to the Zone Tax Offset and/or Overseas Forces Tax Offset):

Low-Income Tax Offset

Resident individuals (including trustees assessed under S.98 of the ITAA 1936 in respect of presently entitled resident beneficiaries) may be entitled to the Low Income Tax Offset ('LITO').

1       A minor who is not an 'excepted person' is ineligible to apply the LITO to reduce tax on their unearned (i.e., Div. 6AA) income.

Low and Middle-Income Tax Offset

Resident individuals (including trustees assessed under S.98 of the ITAA 1936 in respect of presently entitled resident beneficiaries) may be entitled to the Low and Middle Income Tax Offset ('LMITO').

1. A minor who is not an 'excepted person is ineligible to apply LMITO to reduce tax on their unearned (i.e., Div. 6AA) income.
2. The Federal Government announced on 29 March 2022 as part of its budget a once-off $420 'cost of living tax offset' for the 2021/22 income year, which will be provided in the form of an increase to the existing LMITO. This will increase the maximum LMITO benefit to $1,500 for individuals and $3,000 for couples and will be paid from 1 July 2022 when Australians submit their tax returns for the 2021/22 income year.
   
   

Other than those who do not require the full offset to reduce their tax liability to zero, all LMITO recipients will benefit from the full $420 increase. All other features of the LMITO remain unchanged.

To the extent an individual is entitled to an amount of LMITO for the 2021/22 income year under the current law, their entitlement is proposed to be increased by $420, as set out in the above table.

3. The LMITO is not available from the 2022/23 income year.

Private Health Insurance Tax Offset

The Private Health Insurance ('PHI') tax offset (or rebate) is a Government contribution towards the cost of complying policies covering hospitals, general treatment or both. 'Tiers' based on 'income for surcharge purposes' (see page 6) and age are used to determine the rebate percentage and amount.

The rebate percentages are indexed on 1 April each year. Therefore, two percentages apply in calculating a taxpayer's rebate for an income year - one for the period 1 July to 31 March, and one for 1 April to 30 June.

The income thresholds and rebate percentages that apply for the 2022 income year are as follows:

1. A 'single' taxpayer is someone who is not married on the last day of the income year and has no dependent children or siblings.
2. A person will generally be assessed under the 'families/couples' tier thresholds if:

• the person is married on the last day of the income year (including a de facto couple) – in this case, the combined income for surcharge purposes of the taxpayer and their spouse is used; or
• at any time during the year, the person contributes in a substantial way to the maintenance of a dependent child who is either the person's child (as defined in S.995-1 of the ITAA 1997), or the person's sibling who is dependent on them for economic support.
  
  

Seniors and Pensioners Tax Offset

The Seniors and Pensioners Tax Offset ('SAPTO') is broadly available to an individual who:

• on at least one day during the income year is eligible for a pension, allowance or benefit under the Veterans' Entitlements Act 1986, has reached pension age under that Act and is not in jail; or                   
• on at least one day during the income year is qualified for an age pension under the Social Security Act 1991 and is not in jail; or

• has included in their assessable income: (a) a social security pension or education entry payment (as defined in the Social Security Act 1991); or (b) a service pension, carer service pension, income support supplement or Defence Force Income Support Allowance (DFISA), as defined in the Veterans' Entitlements Act 1986, or DFISA-type payment mentioned in Div. 4 of Part VIIAB of that Act; and on at least one day during the income year, is not in jail.
  
  

The individual's 'rebate income' for the income year must be less than a prescribed amount (refer to the table below). The rebate income of an individual for an income year is calculated as the sum of their:

1. taxable income for the year (excluding any assessable FHSS released amount);
2. reportable superannuation contributions for the year;
3. total net investment loss for the year; and
4. adjusted fringe benefits total for the income year.
   
   

The 2021/22 maximum offset and threshold amounts for SAPTO are as follows:

1. For a taxpayer who is a member of a couple (married or de facto, whether of the same or opposite sex), eligibility for SAPTO is established by halving the combined 'rebate income' of the taxpayer and their spouse and comparing this amount to the relevant Cut-out Threshold. If this figure is below the Cut-out Threshold, then the amount of each person’s SAPTO entitlement depends on their own 'rebate income' and their eligibility for any unused portion of their spouse’s SAPTO. If the Cut-out Threshold is reached, neither person is eligible for SAPTO.
2. A person married for part of the year can claim on whatever basis gives them the highest entitlement.
3. The maximum SAPTO reduces by 12.5 cents for each dollar of 'rebate income' over the Shade-out Threshold and reduces to nil for rebate income levels at or above the Cut-out Threshold.
4. If both the taxpayer and their spouse are eligible for SAPTO, any unused portion of the spouse’s offset may be transferred to the taxpayer, broadly if the tax payable by the taxpayer exceeds their offset entitlement.
   
   

Superannuation Spouse Contribution Tax Offset

The tax offset applies to non-concessional contributions a taxpayer makes for their low-income earning or non-working spouse (married or de facto). The amount of the offset for 2021/22 is set out in the table below.

1. Including reportable fringe benefits and reportable employer superannuation contributions but excluding any assessable First Home Super Saver released amounts.
   
   

• No offset is available if the spouse exceeds their non-concessional contributions cap for 2021/22 or their total superannuation balance (as at 30 June 2021) equals or exceeds the general transfer balance cap for 2021/22 of $1.7 million (increased from $1.6 million as from 1 July 2021).
  
  

• The offset is calculated as 18% of the actual contributions if this results in a lower amount.

Zone Tax Offset

Taxpayers who are 'residents' of specified remote areas in Australia (divided into Zone A and B and special areas within each zone) may be entitled to the Zone Tax Offset. Generally, a taxpayer is a resident of a zone if they reside there (not necessarily continuously) for 183 days or more.

For a list of locations currently in a zone or special area, refer to the 'Australian Zone List', which can be found on the ATO website.

The zone tax offset levels for the 2022 income year are as follows:

• The Zone A offset applies to a taxpayer who is a resident of Zone A and has not 'resided' in the special area of either zone (these areas are particularly isolated) during the year. The Zone B offset applies to a taxpayer who is a resident of Zone B and has not 'resided' in Zone A, or the special area of either zone during the year. In other situations where a taxpayer resided in a zone for part of the year, the Commissioner may determine a reasonable amount of tax offset to be claimed.

• The offset is limited to people who are genuinely living (i.e, who have their usual place of residence) in a prescribed zone. As a result, it is not available to fly-in-fly-out and drive-in-drive-out workers who work in a particular zone during the income year, but who otherwise have their usual place of residence located outside of the zone in which they are working.

• Eligible taxpayers may claim both the DICTO and either the ZTO or the Overseas Forces Tax Offset.

• The 'relevant rebate amount' is the total of certain rebates or notional rebates to which the taxpayer is entitled or deemed to be entitled. 

 If you have any questions about personal income tax or just need help saving money, feel free to get in touch with us.