Q: I am attempting to work out when the 30% tax rate applies to both my wife and my own incomes for 2009/10 year. We are both 67 and operate a SMSF to which we can make concessional contributions, and I would like to reduce personal income to the point below which 30% tax rate applies.
Trish’s response: I need to be careful that any response I provide is not taken for specific tax advice. Anyone considering tax minimisation strategies should consult with a registered tax agent, typically an accountant.
Are you eligible for SATO?
Generally speaking, any individual who has reached Age Pension age needs to work out whether they’re eligible for the Senior Australians Tax Offset (SATO). SATO is a tax rebate against tax payable on income, available to eligible taxpayers.
An individual who has reached Age Pension age (65 for men, and currently 63.5 years for women, but moving to 64 from January 2010), may be eligible for the Senior Australians Tax Offset (SATO).
If a person is eligible for the SATO, then such an individual can expect to receive a rebate (tax offset) for all or part of the income tax payable, subject to a person’s income falling within the SATO income thresholds. Some individuals can expect to pay no tax at all, or pay a lower amount of tax, compared with an individual who is not eligible for SATO. I explain how SATO works, and the income thresholds for SATO eligibility, in the article No tax in retirement because you SATO.
If your income exceeds the SATO thresholds however, then the tax bill on your income will be the same as other taxpayers earning similar income (see tax rate table later in the article).
New income test: ‘rebate income’
Note: From the 2009/2010 financial year, reportable super contributions, such as personal deductible contributions and Superannuation Guarantee contributions are added back to an individual’s income when determining eligibility for SATO. The new income test that applies to SATO (and to the pensioner tax offset) is ‘rebate income’.
According to the ATO, rebate income includes a person’s:
- taxable income
- adjusted fringe benefits (reportable fringe benefits x 0.535)
- total net investment loss
- reportable super contributions.
Personal income tax rates
The income tax rates for ordinary taxpayers for the 2009/2010 financial year are:
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Source: ATO
Individuals on lower incomes may be eligible for the Low Income Tax Offset (LITO). If an individual is eligible for the maximum LITO ($1,350 for the 2009/10 year), the effective tax bill is nil for those earning up to $15,000. The LITO gradually reduces as assessable income increases, and is no longer available when an individual’s assessable income reaches $63,750.
In relation to your question about the 30% tax rate: even where a person is eligible for SATO, the individual is subject to the same tax rates as other individuals when calculating the income tax payable. Making tax-deductible super contributions can reduce taxable income, and in turn reduce the amount of tax payable. In terms of SATO eligibility however, although SATO is a rebate that then reduces the final tax payable, making tax deductible super contributions no longer reduces income for the purpose of SATO eligibility.
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