When you need to lodge a tax return in retirement

Do retirees need to lodge a tax return?

Retirement promises a life of rest and relaxation. Just maybe not at tax time.

The Australian Taxation Office (ATO) expects to hear from you, even in retirement. Here's what you need to know.

You receive the age pension

Around 2.6 million Australians receive the age pension. That's about three in five over-65s.

Of these, the majority receive the full age pension. If that sounds like you, tax time may be a breeze.

Elinor Kasapidis, head of policy and advocacy at CPA Australia, explains, "A retiree doesn't need to lodge a tax return if the age pension is their only income."

You earn other types of income

If you're among the one in three pension recipients who receives a part-pension, chances are you're relying on additional income to get by.

Kasapidis notes, "A retiree must lodge a tax return if they receive taxable income in addition to their age pension."

Common forms of taxable income for retirees include share dividends, interest from a fixed term deposit or rental property income.

If you're supplementing your pension with employment income, Kasapidis says Centrelink should already be withholding tax from age pension payments.

This assumes Centrelink is aware you're earning extra income.

"Retirees who receive the age pension are required to declare additional sources of taxable income to Centrelink," cautions Kasapidis.

"Upon becoming aware of additional income, Centrelink will withhold tax from the age pension."

You receive income from super

Income derived from super savings either as a private pension (income stream), a lump sum, or a combination of both, is usually tax-free from age 60.

If super is your only source of income from age 60, you don't need to lodge a tax return.

You earned less than $18,200

In general, you don't need to lodge a tax return if your income for the financial year is under the tax-free threshold of $18,200 and no tax has been withheld on any income.

You'll still need to let the ATO know you won't be completing a tax return. This can be done by filling in a 'non-lodgment advice' via the myGov portal.

As always, there are exceptions.

If you earned below $18,200 but paid tax on, say, casual employment income, you may be due a refund. So it can be worth lodging a tax return.

You earned over $18,200

If your taxable income last financial year comprised of more than the age pension and super, and it was above $18,200, you will need to lodge a tax return.

On the plus side, Kasapidis says that depending on eligibility and income, "retirees may be entitled to the Senior Australians and Pensioners Tax Offset (SAPTO)."

While tax savings are always welcome, SAPTO is not a road to riches.

It is worth a maximum of $2,230 for singles who earn up to $32,279, and $3,204 for couples on a combined income of up to $57,948.

A partial SAPTO may be available for singles earning up to $50,119, and couples earning up to $83,580.

Bear in mind, offsets reduce your tax - potentially to zero, but they don't generate a refund.

You have franking credits from dividends

If you're aged over 60, and you have received dividends with franking credits attached, you may not have to lodge a tax return to receive the franking credits as a cash refund.

The ATO advises that during tax time 2023, it will automatically refund franking credits to eligible individuals and issue a notice of assessment.

That's great news for low-income retirees. The ATO needs your current address to pay the refund - you can check this at ATO Online Services.

The automatic payment of franking credit refunds comes with a lengthy list of exclusions. In particular, it doesn't apply if you use a registered tax agent to manage your tax return.

Free tax help is available

When it comes to tax, it's always better to err on the side of caution.

Fortunately, free support is available.

Retirees who earned less than $60,000 last financial year, and who have simple tax affairs, can contact the ATO on 13 28 61 to make an appointment for the free Tax Help service.

Tax Help provides assistance lodging a tax return online, claiming franking credits or letting the ATO know you don't need to lodge a tax return.

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