Retirement changes your tax situation significantly. Income from a super pension in the retirement phase is generally tax-free once you are aged 60 or over, and the Senior Australians and Pensioners Tax Offset (SAPTO) can reduce or eliminate tax on other income such as bank interest, dividends, and the Age Pension. Understanding what income is taxable and what deductions are available helps you ensure you are not paying more than required.
Do You Still Have to Lodge After Retirement?
You must lodge a tax return if:
- Your taxable income exceeds the SAPTO-effective tax-free threshold (approximately $32,279 for singles, $28,974 each for couples in FY2025–26 — higher than the standard $18,200 threshold)
- You had tax withheld from any payment (bank interest, dividends) and want it refunded
- You have capital gains from selling assets
- You received certain lump sum super payments that are taxable
If your total income is below the effective threshold (after SAPTO), you may not be required to lodge — but lodging may still be worthwhile to recover withheld tax.
Is Your Super Income Tax-Free?
Account-based pension (retirement phase):
- If you are aged 60 or over, income and lump sum withdrawals from a taxed super fund (most retail and industry funds) are tax-free. They are not even included as assessable income in most cases.
- If you are aged 55–59 (preservation age), super pension payments are taxable but the 15% pension offset generally reduces or eliminates the tax.
- If you are under preservation age, different rules apply.
Important: Even tax-free super pension income counts towards the transfer balance cap — the maximum you can hold in the retirement phase ($1.9 million from 1 July 2023, indexed periodically).
Age Pension and Other Centrelink Payments
The Age Pension is taxable income (though usually zero tax applies due to SAPTO). It is pre-filled in myTax from Services Australia data. Always check that the pre-filled amount matches your records.
Other Centrelink payments that are taxable include:
- Carer Payment
- Disability Support Pension (taxable but typically exempt from tax after applying SAPTO)
Senior Australians and Pensioners Tax Offset (SAPTO)
SAPTO is automatically applied by the ATO to eligible retirees. It effectively raises the tax-free threshold for:
- Singles: up to approximately $32,279 (effective FY2025–26)
- Couples (each): up to approximately $28,974
SAPTO is available to those eligible for the Age Pension (broadly: aged 67 or over, or 65–67 under transitional provisions). You do not need to claim SAPTO — it is applied automatically.
If your rebate income (generally taxable income plus some exempt pension income) is below the threshold, you will have no tax liability even on income that looks taxable on the surface.
Taxable Income in Retirement
| Income type | Tax treatment |
|---|---|
| Account-based pension (age 60+, taxed fund) | Tax-free, not included in assessable income |
| Age Pension | Taxable (usually zero tax after SAPTO) |
| Bank interest and term deposits | Taxable |
| Australian shares dividends (franked) | Taxable, but franking credits may offset or exceed tax |
| Capital gains from selling shares or property | Taxable, with 50% CGT discount for assets held >12 months |
| Rental income | Taxable |
| Income from a part-time job | Taxable |
Franking Credits — A Powerful Tool for Retirees
If you own Australian shares that pay franked dividends, the franking credits attached to those dividends offset your tax liability. If your credits exceed your tax bill, the surplus is refunded as cash.
For retirees with little or no taxable income, franked dividends can effectively deliver a cash refund from the ATO equal to the franking credits — even if no income tax was payable in the first place.
Common Deductions for Retirees
- Income protection insurance (held outside super, premium paying phase)
- Investment advice fees related to taxable investments (not advice about super or non-income-producing assets)
- Rental property expenses (interest, rates, repairs, management fees, depreciation)
- Charitable donations to DGRs
- Tax agent fees from the previous year
Frequently Asked Questions
Do I need to lodge if all my income is from a super pension? If you are aged 60 or over receiving an account-based pension from a taxed fund, your super income is generally not assessable and may not trigger a lodgement requirement. However, if you also have bank interest, dividends, or rental income, you likely need to lodge.
Is the Age Pension taxable? Yes — but SAPTO typically means retirees pay no tax on the Age Pension. The amount pre-fills from Centrelink in myTax.
What if I am still working part-time in retirement? Part-time income is taxable. Combined with other income, it may exceed the SAPTO threshold and result in some tax owing. Wage income also does not receive the tax-free treatment that super pension income does.
Does the 2% Medicare levy still apply? Yes, the Medicare levy applies on taxable income. However, retirees with lower taxable income (below about $36,000 for seniors) may qualify for a reduced levy or full exemption.
This article provides general tax information. For advice tailored to your situation, speak with a registered tax agent or financial adviser. Find a tax agent through the Tax Practitioners Board register.