Why you can't afford to ignore tax time when you're retired


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Tax minimisation is typically something you focus on more during your working years, but there are still some basic things you should be aware of approaching and during retirement.

First off, if you earned less than $18,200, you won't pay tax so don't worry about lodging a tax return.

Taxable income Tax on this income
$0 - $18,200 Nil
$18,201 - $45,000 19 cents for each $1 over $18,200
$45,001 - $120,000 $5092 plus 32.5 cents for each $1 over $45,000
$120,001 - $180,000 $29,467 plus 37 cents for each $1 over $120,000
$180,001 and over $51,667 plus 45 cents for each $1 over $180,000
Source: ATO. The above rates do not include the Medicare levy of 2%.

tax tips for retirees

If your retirement income is over $18,201, you'll need to submit a tax return.

Taxable v non-taxable income

It's important to differentiate between the taxable and non-taxable components of your superannuation income.

Taxable components include employer contributions, contributions by the self-employed in cases where tax deductions were made, or salary sacrificed contributions. The tax-free components are

If you're 55-59, you won't pay tax on the tax-free component of your income stream, while the taxed component will be taxed at your marginal tax rate less a 15% tax offset.

Once you hit 60, the tax-free component of your retirement income streams will typically be tax-free.

"If you're over 60 and drawing your pension from a public offer super fund or self-managed super fund, the income is exempt from tax," says director of The Tax Institute, Andrew Mills.

"That means you still have a tax-free threshold available to you, so any other sources of income need to make that tax-free threshold before tax is paid."

There is one exception to this - unfunded pensions (also called pay-as-you-go plans), where the income is paid directly by government or the company you worked for.

DIY your franking credits

Some people may have either exempt pension income from a super fund or franked dividends, and the franking credit would be refundable if below the tax-free threshold.

If your income comes in below the tax-free threshold, you can do away with a tax return altogether.

"The tax office have put in place a quick refund process, so rather than people having to fill in the whole tax return, they can fill in a refund of franking credits if they're below the threshold and they don't have any other taxable income."

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David Thornton was a journalist at Money from September 2019 to November 2021. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.
ILSE Faccin
October 30, 2020 9.39am

I'm a little confused after reading the words "If you earned less than $18,200 don't bother filling out a tax return'. I can think of 3 reasons why I always file a tax return if I earn any money from working.

Firstly, my accountant has advised me that I am required to complete a tax return even if I've earned only $1!

Also, an individual may have had tax money sent in to the Tax office, so they would definitely want to complete a tax return in order to get their tax refunded.

As well, I do a bit of casual work and if I satisfy the work test in a given year I contribute $1,000 into my superfund and get $500 co-contribution from the tax office. I need to complete a tax return in order for this valuable contribution to occur.