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Retirement often marks the end of your career, but it doesn’t always mean saying goodbye to tax. In fact, taxes may become more complicated, depending on the source of your income. The tax you will pay in retirement hinges on several key factors. Below is a guide to help retirees understand what to expect.
Retirement and Tax: How It Works and What Affects What You Pay
How much tax you pay in retirement depends on several things, including your age, superannuation rules, eligibility for offsets, and whether you still earn or invest. Here’s what you need to know:
Do you pay tax if you’re on the Australian Government Aged Pension in Australia?
If you’re retired and the Aged Pension is the only income you receive, you will likely be exempt from paying tax, thanks to the Seniors and Pensioners Tax Offset (SAPTO), which was designed to reduce financial stress for senior Australians.
Here are some up-to-date thresholds and what they mean:
In the 2026 financial year, an eligible single person will receive the maximum SAPTO tax offset if their rebate income is $34,919 or less. Each partner of an eligible couple will receive the maximum SAPTO tax offset if their rebate income is less than $30,994. This is the Shading-Out Threshold.
The offset is reduced incrementally up to the Cut-Out Threshold, which is $52,759 for a single and $43,810 for each partner in a couple.
If you and your partner’s total income (including taxable pension, investment, employment or business income) exceeds the Shading-Out Threshold or you are ineligible for this tax offset for some other reason, then you will most likely have to pay regular rates of tax.
2026 Year SAPTO Snapshot:
Eligible Single Person
Maximum tax offset: $2,230
Income shade-out threshold: $34,919
Income cut-out threshold: $52,759
Eligible Couple (Each)
Maximum tax offset: $1,602
Income shade-out threshold: $30,994
Income cut-out threshold: $43,810
Eligible Couple Separated due to Illness (Each)
Maximum tax offset: $2,040
Income shade-out threshold: $33,732
Income cut-out threshold: $50,052
Filing a Tax Return After Retirement
If you do receive the aged pension, your next question may be related to whether or not you have to lodge a tax return. The ATO online tool will quickly tell you if you’re required to lodge a tax return. Click the link below and answer a few simple questions.
Questions | Do I need to lodge a tax return? (ato.gov.au)
Even if you are not required to lodge a tax return, it may be beneficial to do so. If you receive dividends or distributions with franking credits attached, you might be entitled to a refund of these credits.
If you are exempt from lodging a tax return, you may be required to fill out a ‘Non-lodgement advice form’ to inform the ATO that you are not required to lodge a tax return this year. Do you need to lodge a tax return or a non-lodgement form? Contact Crest Accountants.
Work Bonus
The Work Bonus scheme allows you to earn some money from working on top of your aged pension without affecting your Aged Pension Income Test. Regardless of whether you choose to work or not, you’ll have a $300 credit added to your Work Bonus balance each fortnight, with a maximum Work Bonus balance limit of $11,800. If you work, your Work Bonus balance will offset eligible income.
Reducing the Tax You Pay as a Retiree
If you make a capital gain in retirement, it’s likely that there will be tax involved. Since how much tax to pay in retirement isn’t one-size-fits-all, here are ways to minimise what you owe, legally:
- Plan how and when you withdraw super.
- Make concessional contributions to your superannuation fund if eligible (conditions apply; be sure to seek advice).
- Choosing between income streams and lump sums can make a significant difference. If you’re 60+ and withdrawing from a taxed fund, income stream withdrawals are often tax-free.
- If you are funding your retirement by selling down assets like shares, stagger the sale of parcels of shares over different financial years to utilise lower marginal tax rate thresholds.
- Eligibility for SAPTO can reduce your tax bill substantially. Also, check for other offsets or deductions available to seniors.
- Part-time work, investment income, rental income, and capital gains all count. Managing these so that your total income stays in lower marginal tax rate bands helps keep tax low.
The most helpful strategy in managing your taxes after retirement is to work with specialists. At Crest Accountants, our team of tax accountants not only look at your numbers and ensure you’re compliant, but we also consider your future goals – how you envision your life as you transition into and throughout your retirement. We are here to help.
Remember that the less tax you pay, the more money you will keep in your pocket. Reach out to Crest Accountants today. Happy to help you with managing your taxes in retirement.
Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for professional advice. Whilst the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact upon the accuracy of the information.
