If you’re planning your retirement, it’s good to know how much a pensioner can earn before paying tax – for a number of reasons.
A pensioner or self-funded retiree will generally have at least two sources of income and sometimes more. Each source of income may be treated differently for tax purposes.
We’re going to take a look at how much a pensioner and a self-funded retiree can earn before paying tax in Australia and whether or not retirees even have to pay tax.
How Much Can a Pensioner Earn Before Paying Tax?
A pensioner can earn up to $33,000 before paying tax in Australia, if single, or $30,500 if a member of a couple. This is calculated using the tax-free threshold of $18,200, plus being eligible for the Low Income Tax Offset and the Seniors and Pensioners Tax Offset (SAPTO).
You are able to receive the SAPTO if you received or were eligible to receive an Australian Government (including DVA) pension or allowance and your rebate income is less than $50,119 per year for a single person and $83,580 per year for a couple.
Do Age Pensioners Have to Pay Tax?
Yes, Age Pensioners do have to pay tax, but only if they have a taxable income that exceeds $33,000 for a single person and $30,500 for a member of a couple, assuming eligibility for the Seniors and Pensioners Tax Offset.
If an Age Pensioner’s only source of income is the Age Pension, itself, then Age Pensioners do not need to pay tax, but you may still need to lodge a tax return.
The tax for a pensioner is calculated in the same manner as an ordinary working Australian or self-funded retiree. That is, the taxable income is assessed at marginal tax rates and tax is applied on that basis.
Related article: Tax Planning Strategies For Retirees
How Much Can a Self Funded Retiree Earn Before Paying Tax in Australia?
A self-funded retiree can earn $21,500 before paying tax in Australia. This includes all forms of taxable income, including investment income, but does not take into account any tax deductions. This amount that can be earned is greater than the tax-free threshold of $18,200 due to the application of the low income tax offset.
Do Self-Funded Retirees Pay Tax in Australia?
Yes, self-funded retirees do pay tax in Australia. A self-funded retiree is required to pay tax for taxable income in excess of $21,500. Self-funded retirees are taxed in the same manner as any other Australian, based on the marginal tax rates that apply as income thresholds increase.
A self-funded retiree may have income from a variety of sources, such as superannuation pension income, rental property income, share dividends, bank interest and trust distributions to name a few. Generally, super pension income is not taxable income, but all other forms of income will be assessed for tax purposes.
A self-funded retiree with a taxable income of $50,000 per year will pay tax of around $7,500, while a self-funded retiree with an income of $70,000 per year will pay close to $15,000.
Read more: Retirees Tax In Australia
Do You Need to Lodge a Tax Return if You are a Pensioner?
You will generally still need to lodge a tax return if you are a pensioner. However, this is only the case if Centrelink is withholding tax from your Age Pension payments, or if you have other forms of taxable income, such as investment income or reasonable amounts of bank interest.
If your only source of income is the Age Pension and Centrelink do not withhold any tax from your payments, then you are generally not required to lodge a tax return. In saying that, everyone in Australia must lodge either a tax return or a non-lodgement advice form. A non-lodgement advice form notifies the Australian Tax Office (ATO) that you are not required to lodge a tax return for that year.
How Much Can You Earn and Still Get the Full Pension
A single person can earn up to $204 per fortnight and still get the full pension, while a couple can earn up to $360, combined, and still get the full pension.
For each dollar over $204 per fortnight that a single person earns, their fortnightly Age Pension payments will reduce by 50 cents. For each dollar over $360 per fortnight that a couple earns, each of their fortnightly Age Pension payments will reduce by 50 cents. However, Work Bonus amounts can allow you to earn more than this and still get the full pension. Read on!
When discussing how much you can earn and still get the pension, it is assumed that you are assessed under the Income Test, rather than the Assets Test. Centrelink applies both an Income Test and Assets Test to your situation and whichever test results in you being eligible for the lowest level of Age Pension payments is the test that they apply.
There are some ways to structure your income and assets in order to increase Age Pension entitlements. This video explains how:
Assessable income includes work-related income, including salary sacrifice, bonuses, commissions, etc. as well as other forms of income such as investment income, trust distributions, and deemed income, to name a few.
Importantly, the Work Bonus allows pensions to increase the amount they can earn and still receive the full pension.
How Does the Work Bonus Affect Pensioners?
Under the Work Bonus, the first $300 per fortnight of work-related income earned by a pensioner is not counted for Age Pension assessment purposes. Further, any unused part of the $300 per fortnight can accrue into the Work Bonus Income Bank and be applied at a later stage up to a maximum amount of $7,800. The Work Bonus Income Bank does not expire.
The Work Bonus therefore allows a single pensioner to earn up to $504 per fortnight ($300 work related income + $204 of other assessable income) and still receive the full Age Pension.
While the Work Bonus applies to each individual, the allowances cannot be shared between a couple.
Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.
Articles You Might Also Like:
- Retirement: Your Complete Guide & Resource
- What Is a Comfortable Retirement Income in Australia
- Best Retirement Income Streams
- How Much Can a Retired Person Make Without Paying Taxes?
- Individual income tax rates 2022, Ato.gov.au, viewed 31 March 2023, <https://www.ato.gov.au/rates/individual-income-tax-rates/>.Seniors and pensioners tax offset 2022, Ato.gov.au, viewed 31 March 2023, <https://www.ato.gov.au/Individuals/Income-and-deductions/Offsets-and-rebates/Seniors-and-pensioners-tax-offset/>.
- Income tests 2022, Ato.gov.au, viewed 31 March 2023, <https://www.ato.gov.au/individuals/income-and-deductions/income-tests/?anchor=Rebate_income#Rebate_income>.
- Work Bonus | Department of Social Services, Australian Government 2023, Dss.gov.au, viewed 31 March 2023, <https://www.dss.gov.au/seniors/programmes-services/work-bonus>.