If you are preparing to retire, you may be looking forward to freeing yourself from completing your annual tax return. Unfortunately, not having a job doesn’t mean you’re free from this task as you are still likely to have some form of income; whether it is from your personal savings or a government-issued pension.
Tax in retirement and tax returns for pensioners can be confusing and your accountant is the best port of call for personalised advice. However, the following information will get you started:
Do pensioners pay tax in Australia?
Pensioners pay tax in Australia if they earn more than a certain amount.
If the aged pension is your only source of taxable income and you receive less than $33,000 as a single person or less than $30,500 as part of a couple, you should be exempt from paying tax thanks to the Seniors and Pensioners Tax Offset. If you and/or your partner’s incomes exceed these amounts or you do not qualify for exemptions, you may find yourself paying tax.
Then there is the question of whether or not you will have to fill out a tax return as a pensioner. As a general rule for age pension recipients:
- If you receive the pension and tax is not withheld, and you earned no other income, you will not need to lodge a tax return.
- If you receive the age pension and earn money from other sources, and if Centrelink withholds tax from your payments, you will need to lodge a tax return.
You should receive a payment summary from Centrelink at the end of the financial year. You can use the information in this summary to complete a tax return.
If you are exempt from filing a tax return, you will still have to put in what’s known as a ‘Non-lodgement advice form’ which lets the tax department know they won’t receive a return from you. If you don’t do this, you might end up receiving phone calls from the ATO.
Confused about whether you need to fill out a tax return for pensioners? The ATO offers a tool to help you figure out if you need to log a tax return for pensioners. You can access it here.
Self-funded retirees & superannuation
Things are more straightforward for individuals and couples who receive the aged pension. Tax and tax returns become more complex in retirement when you are:
- Living on your own savings (self-funded retiree)
- Earning money from assets such as investment properties
- Working part time
- Drawing money from superannuation
- Drawing money from a trust
- Employed by a foreign company
- Earning money from a business you own
- Selling a property that is eligible for capital gains tax
Basically, if you earn money beyond tax exemption thresholds, you have to pay tax and file a tax return (with a few exceptions, for example if you have a non tax assessable windfall).
Instead of wondering if you have to pay tax as a retiree, it makes sense to work with an accountant to understand exemptions and thresholds so you know the right amount to ‘pay yourself’ or earn while still being able to minimise tax.
For example, you can still work and earn money if you earn the aged pension, but only up to a certain amount before you pay tax. This falls under something called the Work Bonus, which allows singles to earn up to $204 per fortnight and couples to earn up to $360.
Then there is superannuation, and the ability to contribute money you earn to your super so you can reduce your tax obligations. Your accountant can walk you through the thresholds and strategies so you can make the most of these initiatives.
Have you submitted your last tax return?
Unfortunately, if you’re wondering about tax returns for pensioners or if pensioners pay tax in Australia, even when you are retired, you still need to pay attention to this area of your finances.
This is why many seniors have dedicated accountants and financial planners. These professionals can examine your income and let you know how to arrange your money so you pay less tax, then help you submit your tax return at the end of the financial year.
Tax return for pensioners
With this article we are looking to discuss what is required with a tax return as you retire &/or are receiving the age pension. Tone is informative but also easy to understand.
- Clear up any misconceptions in regards to the pension and a tax return
- Explain any implications of selling your home or investment property
- Links to other articles which have information on this topic:
- https://www.superguide.com.au/in-retirement/lodge-tax-returns-in-retirement#:~:text=Many%20retirees%20find%20they%20still,another%20source%2C%20such%20as%20investments
- https://abas.net.au/tax-returns-guide-for-seniors-and-aged-pensioners/
- https://www.bt.com.au/personal/your-finances/retirement/tax-in-retirement-what-you-need-to-know.html#:~:text=If%20you%27re%2060%20and,how%20it%20will%20be%20taxed.
