There are many Australians who have finally reached the ultimate milestone of retirement and are now on the aged pension, and there are more people entering this stage of life each year. And as you enter a different stage in your life, your tax obligations can change too. It can be hard to keep up with, and to know what your responsibilities are when tax time comes around.
So, while you may know that you must lodge a tax return if you’re earning a taxable income – what you might not know is that you may be required to lodge even if your only source of income is the aged pension.
Most government payments are tax assessable, and you will receive a payment summary from Centrelink and will be required to submit a tax return if your payments for the year exceed the threshold. You can also choose to have Centrelink automatically withhold tax from your payments, which will help you avoid a bill at tax time.
Having to pay tax as a pensioner depends on a few things, including: your age, assets, and taxable income.
Taxable income for pensioners might look like:
– Rental income earned from investment properties
– Interest earned from savings accounts or term deposits
– Income from investments/dividends
– Income from employment, such as a wage or salary paid by an employer
– Any business income if you are self-employed
– Lump-sum payments (such as inheritance or compensation)
– Lump-sum superannuation payments
Seniors and pensioners tax offset (SAPTO)
The seniors and pensioners tax offset (SAPTO) can reduce the amount of income tax that you are required to pay. In some cases, you may even be able to transfer your unused SAPTO to your spouse or vice versa (if you’re both eligible) and have your transfer amount included while calculating your spouse’s SAPTO.
You must meet a certain criteria to be eligible for the seniors and pensioners tax offset, such as:
– You received the Australian Government aged pension or allowance
– You received a pension, allowance, or benefit from the Department of Veterans’ Affairs.
– You meet the Centrelink aged pension age requirement
There are more eligibility requirements and information on the SAPTO page on the ATO website, as well as various examples and tables that can help you figure out if SAPTO is right for you and your situation.
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What if I receive taxable income and the aged pension?
To determine whether or not you must lodge a tax return when you earn income and receive the aged pension – you must calculate what is called your ‘rebate income’. To calculate your rebate income, you will need to know the taxable income you have earned, and then take into account the following (if they apply to you):
– Superannuation contributions from an employer or business
– Net investment losses
– Adjusted fringe benefits total
– Net property loss
This calculation will give you your rebate income.
Your personal circumstances also affect the amount of rebate income you are permitted to earn before you are required to lodge a tax return, so please take these into account when calculating your income.
You will be required to lodge a tax return if:
– If you were single, widowed, or separated at any time during the financial year, and your rebate income was greater than – $32,279
– If you lived with a spouse or partner for the full financial year, and your combined rebate income was greater than – $57,948
– If your spouse was in a nursing home, or you were required to live apart due to illness or medical circumstances, and your combined rebate income was greater than – $31,279
If you earned taxable income and also receive the aged pension, it’s probably a good idea to ask Centrelink to start deducting tax from your payments to avoid a surprise at tax time. Centrelink does not do this automatically, but you are able to ask them to do this while submitting a claim. You can ask them to deduct the tax as either a set dollar amount, or a percentage of total taxable payments. The amount that you will need them to deduct will depend on your personal circumstances.
If you’re already receiving payments, and did not set up deductions while making your initial claim – you can arrange this deduction at any time through your online account or through self-service. If you’re unable to access a self-service option, you can always visit a Centrelink service centre and fill out a Tax Deduction Authority form. This deduction can be changed or stopped at any time if your circumstances change.
What if my only source of income is the aged pension?
Even if your only source of income is the aged pension, you may still be required to lodge a tax return. Centrelink may or may not be withholding tax from your pension payments. If they are, this will show up on your PAYG statements, and you will be required to lodge a tax return. However, if Centrelink has not been withholding tax from your payments, and you don’t earn any income from other sources – you are generally not required to lodge.
But be aware – even if you’re not required to lodge, you will still have to submit a ‘non-lodgement advice’. This alerts the ATO that you will not be lodging a tax return, and it will avoid any follow up from them if they notice that you have not completed a tax return. This helps the ATO and protects you at the same time. You can file this non-lodgement advice through your myGov account or directly through the Australian Taxation Office website.
In conclusion, it’s best to protect yourself, and if you earn any taxable income – assume that you will be required to submit a tax return to the ATO by the deadline each year. If you’re not required to lodge, file a non-lodgement advice as early as possible to avoid any issues with the ATO.