If you lodged your FY2022–23 tax return and received a smaller refund than expected — or even a tax bill where you expected a refund — the most likely explanation is the end of the Low and Middle Income Tax Offset (LMITO). LMITO was worth up to $1,500 per year and applied to incomes between $37,001 and $126,000. It ended permanently after 30 June 2022.
The Core Reason: LMITO Ended
The Low and Middle Income Tax Offset (LMITO) was a temporary tax offset introduced in 2019 and extended through the COVID-19 period. It was worth up to $1,500 for incomes between $48,001 and $90,000, with lower amounts for incomes below $48,001 and a phase-out above $90,000.
After FY2021–22, LMITO was not extended. From FY2022–23 onward, eligible individuals no longer receive this offset when lodging their tax return.
The practical impact:
If you earned $70,000 in FY2021–22 and again in FY2022–23, all else being equal:
- FY2021–22: LMITO of $1,500 applied → reduced your tax by $1,500
- FY2022–23: LMITO of $0 → tax is $1,500 higher, refund is $1,500 smaller
How Much Did the Expiry of LMITO Affect Refunds?
| Taxable income (FY2021–22) | LMITO received | Impact on FY2022–23 refund |
|---|---|---|
| Under $37,000 | $255 | Refund up to $255 less |
| $37,001 – $48,000 | $255–$1,500 | Refund $255–$1,500 less |
| $48,001 – $90,000 | $1,500 | Refund up to $1,500 less |
| $90,001 – $126,000 | $1,500 declining to $0 | Refund up to $1,500 less |
| Over $126,000 | $0 | No change from LMITO expiry |
Other Reasons Your Refund May Have Shrunk
While LMITO expiry was the most common reason for smaller refunds in 2022–23 and 2023–24, other factors can also reduce a tax refund year-on-year:
| Reason | Effect |
|---|---|
| Higher income than prior year | More tax owed at higher marginal rate |
| Fewer deductions | Less tax offset via claims |
| Side income not accounted for | Additional tax payable at return time |
| Investment income (dividends, interest) | Increased assessable income |
| Employer withheld less than required | Under-withholding creates a tax bill |
| PAYG instalments changed | May reduce or eliminate refund |
| Change in withholding from second job | Overlap between withholding schedules |
Did the Stage 3 Tax Cuts Help?
The Stage 3 tax cuts took effect from 1 July 2024 (i.e., FY2024–25 onward). These cuts reduced the 32.5% marginal rate to 30% and adjusted tax brackets. For most earners in the $45,001–$135,000 range, the Stage 3 changes provided meaningful annual tax reductions — but these changes took effect two years after LMITO ended, so FY2022–23 and FY2023–24 returns still reflected the full effect of LMITO’s removal.
For FY2024–25 returns (lodged from July 2025), Stage 3 benefits should partly offset the ongoing absence of LMITO.
Should I Adjust My PAYG Withholding?
If you have consistently received large refunds and want to smooth this out, you can ask your employer to increase withholding via a Withholding Variation or a Withholding Variation Application to the ATO. Alternatively, if you have complex income, a tax agent can help you understand your likely tax position before year end.
Related Articles
- LMITO Explained — What It Was and Why It Ended
- Low Income Tax Offset (LITO) — How It Works
- Do I Qualify for LITO?
- Tax Offsets hub
- Taxes hub
Frequently Asked Questions
My refund was $2,000 less than last year. Is LMITO the only reason? LMITO accounts for up to $1,500 of refund reduction. If your refund dropped by more than $1,500, additional factors are likely at play — such as higher income, fewer deductions, or other income not reflected in PAYG withholding. A tax agent can review your return and explain the specific drivers.
Will there be a new LMITO-like offset in future budgets? As of FY2025–26, no new LMITO equivalent has been announced. The government’s position is that Stage 3 structural changes provide ongoing relief. Future budgets could change this, but there is no indication of a new temporary offset of this type in current legislation.
I am on a low income and received only $255 in LMITO — is that right? Yes. LMITO was worth only $255 for those earning $37,000 or less. The maximum $1,500 required income between $48,001 and $90,000. Low-income earners also have the permanent LITO (up to $700) and the tax-free threshold, which provide more significant relief on a percentage basis.
This article provides general tax information only. For advice tailored to your situation, speak with a registered tax agent. Find one through the Tax Practitioners Board register or visit MoneySmart.