The Age Pension is a key source of income for many seniors and retirees in Australia, although many do not completely understand the Age Pension tax. Eligible Age Pensioners can receive fortnightly payments and may also be eligible to receive tax offsets to keep more money in their wallets.
What is Age Pension?
Age Pension is a government-provided income support for elderly citizens or permanent residents of Australia who have reached the age of pension eligibility, currently 66.5 years old. The pension eligibility age will increase to 67 from 1 July 2023. The Age Pension is designed to assist elderly Australians who may have limited financial means to meet their basic needs.
Age Pension Eligibility
To be eligible for the Age Pension, individuals must meet certain residency, asset, and income test criteria. The amount of Age Pension received may vary based on an individual’s financial situation and other sources of income.
Residency criteria: To receive the Age Pension, individuals must be either an Australian citizen or a permanent resident and must have lived in Australia continuously for at least 10 years, including five years after the age of pension eligibility. This residency requirement is known as the “10-year rule.”
Asset test criteria: To receive a full pension, the value of the applicant’s assets must not exceed the figures in the table below. If the value of the assets exceeds the figures, individuals may receive a partial pension or no pension at all.
|A couple, combined||$419,000||$643,500|
|A couple, separated due to illness, combined||$419,000||$643,500|
|A couple, one partner eligible, combined||$419,000||$643,500|
Example: John is single and satisfies the criteria to receive the Age Pension. John owns a home and has calculated his total assets to be worth $257,000. As John’s assets are worth less than the $280,000 limit, he may be entitled to a full pension if he passes all the Age Pension criteria.
Income test criteria: Individuals must pass an income test to determine their eligibility for the Age Pension. The income test considers an individual’s taxable income, which includes earnings from employment, investments, rental properties, and other sources.
If an individual’s income exceeds a certain limit, they may not be eligible for the full Age Pension or may not be eligible for the Age Pension at all.
Age Pension income cut-off points
|Your situation||Income cut-off point (fortnightly)|
|A couple living together||$3,431.20 combined|
|A couple living apart due to ill health||$4,442.00 combined|
Example: David is a single pensioner that has earned a fortnightly income of $2,300. The government will not pay David a pension for that fortnight as he has exceeded the cut-off point.
Taxation of Age Pension
How is Age Pension Taxed? The Age Pension is considered taxable income in Australia, and as such, it is subject to income tax. However, the amount of tax payable depends on the recipient’s total income, including any other sources of income such as investment earnings or rental income.
Age pensioners are taxed at the same rate as non-pensioners, meaning they share the same tax-free threshold and tax brackets as regular Australians.
You can calculate your online tax return with your online tax agent OneClick: https://oneclicklife.com.au/tax-calculators/
Taxation of Age Pension as the Only Source of income
If the Age Pension is the only source of income for an individual, they may not be required to pay income tax. This is because the Age Pension income threshold for the tax-free amount is set at a level that is higher than the basic Age Pension rate. As a result, many Age Pensioners with only the Age Pension as their source of income will not be required to pay income tax.
Taxation of Other Sources of Income
What if you earn additional income as a pensioner? Pensioners that make extra money from other sources are likely required to pay taxes as they enter higher tax brackets. As pensioners are subject to the same tax rates, bringing in more money requires them to pay taxes.
Seniors and Pensioners Tax Offset (SAPTO)
In Australia, seniors and pensioners may be eligible for the Seniors and Pensioners Tax Offset (SAPTO). SAPTO is a tax offset designed to provide financial assistance to qualified seniors and pensioners by lowering their tax liability.
Eligibility: Individuals must meet specific conditions to be eligible for SAPTO, including being of Age Pension age or older, receiving a qualified pension or allowance, and being an Australian resident for tax purposes.
It’s also worth noting that the SAPTO income test is distinct from the Age Pension income test, so even if an individual does not match the Age Pension income test standards, they may still be eligible for SAPTO.
Benefits of SAPTO:
The benefits of SAPTO include a reduction in tax liability, resulting in a lower amount of tax payable. SAPTO is calculated based on an individual’s taxable income, and the amount of offset received may vary based on their financial situation.
SAPTO can only be claimed on the individual’s online tax return and not in advance. However, claiming SAPTO can result in a significant reduction in tax payable, making it an essential factor for eligible seniors and pensioners.
Rates and rebate income thresholds (SAPTO)
|Your situation||The maximum tax offset amount||Shading-out threshold||Cut-out threshold|
|Each partner of a couple||$1,602||$28,974||$41,790|
|Each partner of an illness separated couple||$2,040||$31,279||$47,599|
Example: Claire and Simon are married and live together. Both Claire and Simon receive an Age pension from Centrelink. Claire’s rebate income is $24,680 and Simon’s is $27,595.
Claire and Simon are both eligible for the maximum SAPTO amount of $1,602 because their combined rebate income is less than the shading-out threshold of $28,974.
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