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