As you reach your senior years, your thoughts will likely turn to retirement. The chances are you’ve been working for much of your adult life and are looking forward to some more spare time to spend with family or to go travelling. It’s a golden picture of a fulfilling, carefree retirement painted in a thousand commercials for superannuation companies but it’s a picture which rarely accords with real life.
In practice, the amount people save in super is rarely enough to support the lifestyle they envisage living and the reality for many is that they need to keep on working, even if only in a part-time capacity.
Fortunately, the tax system favours senior Australians so in addition to the tax-free benefits of super, there are a number of other tax incentives available which can make it easier to get by.
How will retirement affect my tax?
- Once you are over 60, you can generally access you super tax free.
- In addition, if you are under the pension age you can earn up to $22,575 in non-super income (for instance from a business or part-time job) and pay no income tax. This is because you’ll benefit from the combination of the $18,200 tax-free threshold and the low income tax offset of $700, which equates to an additional tax-free amount of $4,375 (which has recently gone up, as the tax rate has gone down from 19 per cent to 16 per cent).
- Once you pass the age pension age (67 years of age from 1 July 2023), you can earn up to $32,279 (if you’re single) without paying income tax, in addition to your tax-free super. This is because you become eligible for the Seniors and Pensioners Tax Offset (SAPTO). Couples can jointly earn $57,948 (on top of super) without having to pay tax, thanks to the SAPTO.
- You can earn up to $50,119 (if you’re single) or $83,580 (for couples) in non-super income and still get some benefit from the SAPTO, though the benefit is less since it phases out the more you earn (and disappears altogether above those income levels).
Tax on superannuation withdrawals
By the time you reach the point at which you can access your super, your fund will have grown thanks to a combination of the contributions your employers paid during your working life, any additional personal contributions you made when your cash flow allowed and the investment returns earned by the fund. Set against that, the fund will have paid some tax and the super fund will have deducted fees and charges for running your fund. In an ideal world, the investment returns made by your fund will have substantially exceeded the taxes, fees and charges levied over the years.
When you become eligible to access your super you can either take a super income stream to provide you with a regular income as you grow older, or you can withdraw some or all of your super as a lump sum.
Super income streams
A super income stream consists of taxable and tax-free elements.
The taxable part of your super fund consists of:
- contributions paid by your employers over the years
- salary sacrificed contributions
- contributions made if you are a self-employed person where a tax deduction was claimed.
The tax-free part of your super fund consists of:
- contributions made from your taxed income (non-concessional contributions)
- government co-contributions.
For people aged 60 and over, benefits from a taxed super fund (i.e. the vast majority of super funds) are tax free.
Lump sum withdrawals
If you are aged 60 or over any lump sum withdrawals from a taxed super fund are generally tax free.
When was the last time you looked at your tax arrangements? Do you have any other tax questions? Let us know in the comments section below.
Superannuation is one of the best investments most people can have once they have reached retirement age and converted to an Allocated Pension, payable by the fund at a certain % of the fund assets based on your current age, each year.
Particularly when one has investments outside of superannuation that, presently, are earning quite a good income.
The pension paid by your fund is tax free and, from above, you can earn quite a lot of money and still not pay tax.
A win, win, situation and one we are making use of.