Entering retirement means the end of your working days, but it doesn’t necessarily mean the end of your tax responsibilities. In fact, tax matters can become more intricate, depending on the sources of your retirement income. The amount of tax you’ll owe during retirement depends on various factors.
Do you pay tax if you’re on the Australian Government Aged Pension in Australia?
If you’re retired and the only income you receive is an Aged Pension, it’s likely you will be exempt from paying tax. This is thanks to the Seniors and Pensioners Tax Offset, which was designed to reduce financial stress for senior Australians.
An eligible single person will receive the maximum SAPTO tax offset if their rebate income is $32,279 or less. Each partner of an eligible couple will receive the maximum SAPTO tax offset if their rebate income is less than $28,974. This is the Shading-Out Threshold.
The offset is reduced incrementally up to the Cut-Out Threshold which is $50,119 for a single and $41,790 for each partner in a couple.
If you or your partner exceed the Shading-Out Threshold, or are ineligible for this tax offset for some other reason, then you will most likely have to pay tax.
Filing a tax return after retirement
If you do receive the aged pension, your next question may be related to whether or not you have to lodge a tax return. The ATO online tool will quickly tell you if you’re required to lodge a tax return.
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Even if you are exempt from lodging a tax return, it may be beneficial to do so. If you receive dividends or distributions with franking credits, you might be entitled to a refund of these credits.
If you are exempt from lodging a tax return, you may be required to fill out a ‘Non-lodgement advice form’, to inform the ATO that you are not required to lodge a tax return this year. Unsure if you need to lodge a tax return or a non-lodgement form? Contact Moore Lewis & Partners.
Work Bonus
The Work Bonus scheme allows you to earn some money from working on top of your Aged Pension without affecting your Aged Pension Income Test. From 1 December 2022 to 31 December 2023, the maximum Work Bonus balance limit increases from $7,800 to $11,800. This will reset to $7,800 on 1 January 2024. You’ll also get a one-off increase of $4,000 to your Work Bonus balance during this period.
Reducing the tax you pay as a retiree
If you make a capital gain in retirement, it’s more than likely there will be tax involved. You may be able to minimise the tax you pay, by making concessional contributions to your superannuation fund (conditions apply, seek advice).
The less tax you can pay, the more money you will keep in your pocket. It makes sense to work with a financial planner and tax accountant who can help you structure your income so you pay as little tax as legally possible.
Looking for a tax accountant in Toowoomba or the Southern DOwns to help you manage tax in retirement? Reach out to Moore Lewis & Partners today!
