No tax in retirement because you SAPTO (updated rates)

This article is updated annually with new rates, or updated periodically to highlight changes (if any) to the Seniors & Pensioners Tax Offset (SAPTO) rules. This article includes SAPTO rates for the 2015/2016, 2014/2015, 2013/2014, and 2012/2013 years, and SATO rates for the 2011/2012, 2010/2011, 2009/2010 and 2008/2009 years. Before 1 July 2012, the SAPTO was called the Senior Australians Tax Offset (SATO). Latest article update was 2 January 2016.

The superannuation rules delivering tax-free super for over-60s are not the only tax benefits that you can take advantage of in retirement. You may also be eligible for the Seniors & Pensioners Tax Offset (SAPTO), assuming you have reached a certain age and your income is below a certain threshold (see Table 1 below).

Tax-free super for over-60s: If you are aged 60 or over, your superannuation benefit from a taxed source is not included as part of your assessable income. Most Australians receive super benefits from a taxed source, unless you’re a member of one of the older public sector super funds (untaxed source). If you super benefit is from an ‘untaxed source’ some tax is payable on the taxable component of the benefit.

Seniors & Pensioners Tax Offset (SAPTO): The SAPTO means that a couple who has reached Age Pension age, can earn a ‘rebate income’ of up to $28,974 each ($57,948 combined) for the 2015/2016 year without paying income tax, subject to certain conditions. This ‘rebate income’ is in addition to any super benefits from a taxed source. (This level of rebate income also applies for the 2014/2015 year, and the 2013/2014 and 2012/2013 years).

Tip: The combination of SAPTO, and tax-free super for over-60s, means that Australians of Age Pension age or over can enjoy even greater tax-free income.

The tax consequences of the superannuation rules are fantastic for those senior Australians eligible for the Seniors & Pensioners Tax Offset (SAPTO). Even for those Australians not eligible for the SAPTO, the tax rules in combination with the super rules, are still pretty enticing. The retirement tax rules are set out in the next section.

How do the super and tax rules operate in retirement?

  1. You can earn non-super income in addition to your tax-free super benefit and take advantage of the tax-free threshold of $18,200 (if under Age Pension age, or if over Age Pension age and not eligible for SAPTO) and the low income tax offset (LITO) of up to $445 (for the 2015/2016 year, or for the 2014/2015, 2013/2014, and 2012/2013 years). For the 2010/2011 year, the tax-free threshold for was $6,000 (if under Age Pension age, or if over Age Pension age but eligible for SATO) and the LITO was up to $1,500.
  2. Rewording point 1, if you’re under Age Pension age (or over Age Pension age and not eligible for SAPTO), you can earn non-super income of up to $20,542 for the 2015/2016 year (or for the 2014/2015, 2013/2014, or 2012/2013 years) before any income tax is payable. For the 2011/2012 year, you could earn up to $16,000 before any income tax was payable.
  3. The tax rules get even better when you reach the age of 65 (current Age Pension age). If you’re Age Pension age (currently age 65) or older, you may be able to access more generous tax-free thresholds, known as the Seniors and Pensioners Tax Offset (SAPTO). If you’re single, you can earn up to $32,279 in the 2015/2016 year (or for the 2015/2016, 2013/2014, or 2012/2013 years) in non-super income without paying a cent of tax because of the application of SAPTO and LITO.
  4. This $32,279 of ‘rebate income’ for the 2015/2016 year (and this level of rebate income also applies for the 2014/2015, 2013/2014, and 2012/2013 years), is in addition to any superannuation benefit that you receive from a taxed source (super benefits are tax-free when paid on or after the age of 60 from a taxed source).
  5. If you earn more than $32,279, or $28,974 each as a couple for the 2015/2016 year (and also for the 2014/2015, 2013/2014 and 2012/2013 years), you will still be able to access the SAPTO, but it will be a reduced tax offset. What this means is that some income tax will be payable if your ‘rebate income’ exceeds the lower income threshold of $32,279 (for a single person) or $28,974 each for a couple. 

How does the ATO calculate ‘rebate income’ for SAPTO?

The income test for SAPTO is based on income known as ‘rebate income’ which includes:

  • taxable income
  • reportable super contributions: these types of contributions include salary sacrifice contributions and personal deductible contributions.
  • total net investment loss (includes both net financial investment loss and net rental loss
  • adjusted fringe benefits (reportable fringe benefits x 0.535)

A couple who has reached Age Pension age, can earn a ‘rebate income’ of up to $28,974 each ($57,948 combined) for 2015/2016 year without paying income tax, subject to certain conditions (see Table 1 below). The rebate income thresholds are the same for the 2014/2015, 2013/2014 and 2012/2013 years (see Table 2 later in the article).

How are couples tested for SAPTO? A couple is first tested for SAPTO eligibility on combined income. If they have combined rebate income under the Shade-Out Threshold, then each member of a couple is tested separately for SAPTO eligibility. If a member of a couple earns more than the Shade-Out Income Threshold ($41,790 for the 2015/2016 year, and also for 2014/2015 year and for 2 earlier years), then that member of the couple is not eligible for SAPTO. If both members of a couple are eligible for SAPTO, and one member of the couple does not fully use the SAPTO (for example, you earn less than $28,974 for the 2015/2016 year or for the 2014/2015 year, or earlier years) then you may be able to transfer the unused portion to the other member of the couple.

If a couple’s income exceeds the cut-out income threshold of $83,580 for the 2015/2016 year (or for the 2014/2015 year, or 2 earlier years), the couple is no longer eligible for SAPTO. A couple is then treated like any other taxpayer and is taxed on taxable income less the $18,200 tax-free threshold (confirm your specific tax position with your accountant or the ATO).

Note: Again, this ‘rebate income’ is in addition to any super benefits from a taxed source. The combination of SATO and tax-free super for over-60s means that Australians of Age Pension age or over may secure even greater tax-free income.

Completing tax returns: Each year, the ATO publishes information on its website to assist taxpayers who are seeking to claim SAPTO, and to ensure taxpayers complete the income tax return correctly. 

Table 1: SAPTO thresholds for 2015/2016 year
CategoryFull Offset Income ThresholdShade-Out Income ThresholdMaximum Tax Offset Available
Single$32,279$50,119$2,230
Couple (each)*$28,974$41,790$1,602
Couple (combined)$57,948$83,580$3,204*
Couple (each, living apart due to illness)*$31,279$47,599$2,040
Couple (combined, living apart due to illness)$62,558$95,198$4,080*
*A couple is tested on combined income for SAPTO eligibility. If combined income is less than combined SAPTO threshold, then each member of a couple is tested separately for SATO eligibility, and also whether the unused portion (if any) of spouse’s SAPTO can be transferred.

Notes: Combined effect of the SAPTO and LITO is that, at maximum tax offset eligibility, no tax is payable. ‘Rebate income’ above the cut-out thresholds means no SAPTO is available, and a part offset is available for income between full offset and cut-out income threshold. The SAPTO reduces by 12.5 cents for each $1 of taxable income above the Full Offset Income Threshold up to the Cut-Out Income Threshold (officially known as the ‘Shade-out threshold’).

Medicare levy may still be payable

Medicare levy may still be payable even where income tax is not payable due to SAPTO. Note also that the income test measured for SAPTO is ‘rebate income’ (refer earlier in this article for explanation), while the income test for Medicare levy threshold is taxable income. Consider the following scenarios:

  • If you’re a senior or pensioner, you pay no Medicare levy when your taxable income is less than $33,044.
  • If a single person eligible for SAPTO has a rebate income of less than $32,279, then no tax is payable, and presumably no Medicare levy is payable (because presumably taxable income is below $33,044).
  • If a single person eligible for SAPTO has a rebate income of more than $32,279 then the person is required to pay some income tax. Assuming taxable income is less than $33,044, then no Medicare levy.
  • If a single person eligible for SAPTO has a rebate income of more than $32,279 then some tax is payable. If the same person has taxable income of more than $31,044 but less than $41,306, then the person is required to pay 10% of the excess taxable income above $31,044 as Medicare levy.
  • If a single person eligible for SAPTO has a taxable income (different definition to rebate income) of more than $41,306 then 2% Medicare levy is payable, along with some income tax. For the Medicare levy treatment of couples eligible for SAPTO see ATO website.

SAPTO income thresholds for earlier financial years

Individuals who have reached Age Pension age have considerable scope to take advantage of the SAPTO. The text below explains the cut-out income thresholds for SATO for the following earlier financial years:

SAPTO for 2014/2015, 2013/2014 and 2012/2013 years

A couple earning rebate income greater than $57,948 a year (for 2014/2015, 2013/2014 or for 2012/2013 years) is still eligible for the Seniors and Pensioners Tax Offset but they will receive a lower tax offset, which means that some tax is generally payable. SAPTO still applies to ‘rebate income’ of up to $50,119 for a single person and $83,580 ($41,790 each) for a couple (for the 2014/2015, 2013/2014 or 2012/2013 years), which means you still pay tax but not as much.

Note: If an individual’s or couple’s income exceeds the cut-out income threshold, they are no longer eligible for the Seniors and Pensioners Tax Offset. Such a taxpayer is then treated like any other taxpayer, and subject to ordinary income tax rates (for the latest marginal income tax rates see SuperGuide article Australian income tax rates for 2015/2016 and 2014/2015 years.

Table 2: SAPTO thresholds for 2014/2015, 2013/2014, or for 2012/2013 year
CategoryFull Offset Income ThresholdShade-Out Income ThresholdMaximum Tax Offset Available
Single$32,279$50,119$2,230
Couple (each)*$28,974$41,790$1,602
Couple (combined)$57,948$83,580$3,204*
Couple (each, living apart due to illness)*$31,279$47,599$2,040
Couple (combined, living apart due to illness)$62,558$95,198$4,080*
*A couple is tested on combined income for SAPTO eligibility. If combined income is less than combined SAPTO threshold, then each member of a couple is tested separately for SATO eligibility, and also whether the unused portion (if any) of spouse’s SAPTO can be transferred.

Notes: Combined effect of the SAPTO and LITO is that, at maximum tax offset eligibility, no tax is payable. ‘Rebate income’ above the cut-out thresholds means no SAPTO is available, and a part offset is available for income between full offset and cut-out income threshold. The SAPTO reduces by 12.5 cents for each $1 of taxable income above the Full Offset Income Threshold up to the Cut-Out Income Threshold (officially known as the ‘Shade-out threshold’).

Note: A couple is first tested for SAPTO eligibility on combined income. If they have combined rebate income under the Shade-Out Threshold, then each member of a couple is tested separately for SAPTO eligibility. If a member of a couple earns more than the Shade-Out Income Threshold ($41,790 for the 2014/2015, year, and for the 2013/2014 or 2012/2013 years), then that member of the couple is not eligible for SAPTO. If both members of a couple are eligible for SAPTO, and one member of the couple does not fully use the SAPTO (for example, you earn less than $28,974 for the 2014/2015 year or for the 2013/2014 year) then you may be able to transfer the unused portion to the other member of the couple.

If a couple’s income exceeds the cut-out income threshold of $83,580 (for the 2014/2015 year, or for the 2013/2014 or 2012/2013 years), the couple is no longer eligible for the offset. A couple is then treated like any other taxpayer and is taxed on taxable income less the $18,200 tax-free threshold (confirm your specific tax position with your accountant or the ATO).

SATO for 2011/2012 and 2010/2011 years

A couple earning rebate income greater than $53,360 a year (for 2011/2012 or for 2010/2011 years) were still eligible for the Senior Australians Tax Offset but they would receive a lower tax offset, which means that some tax would be generally payable. SATO still applied to ‘rebate income’ of up to $48,525 for a single person and $78,992 ($39,496 each) for a couple (for the 2011/2012 or 2010/2011 years), which meant you still paid tax but not as much.

Note: If an individual’s or couple’s income exceeded the cut-out income threshold, they are no longer eligible for the Senior Australians Tax Offset. Such a taxpayer is then treated like any other taxpayer, and subject to ordinary income tax rates (for the marginal income tax rates for these 2 financial years see the end of the SuperGuide article Australian income tax rates for 2015/2016 and 2014/2015 years.

SATO thresholds for 2011/2012 year, or for 2010/2011 year
CategoryFull Offset Income ThresholdCut-Out Income ThresholdMaximum Tax Offset Available
Single$30,685$48,525$2,230
Couple (each)*$26,680$39,496$1,602
Couple (combined)$53,360$78,992$3,204*
Couple (each, living apart due to illness)$29,600$45,920$2,040
*A couple is tested on combined income for SAPTO eligibility. If combined income is less than combined SAPTO threshold, then each member of a couple is tested separately for SATO eligibility, and also whether the unused portion (if any) of spouse’s SAPTO can be transferred.

Notes: Combined effect of the SATO and LITO is that, at maximum tax offset eligibility, no tax is payable. ‘Rebate income’ above the cut-out thresholds means no SATO is available, and a part offset is available for income between full offset and cut-out income threshold. The SATO reduces by 12.5 cents for each $1 of taxable income above the Full Offset Income Threshold (officially known as the ‘Shade-out threshold’).

Note: A couple is first tested for SAPTO eligibility on combined income. If they have combined rebate income under the Shade-Out Threshold, then each member of a couple is tested separately for SATO eligibility. If a member of a couple earnt more than the cut-out income threshold ($39,496 for the 2011/2012 or 2010/2011 year), then that member of the couple was not eligible for SATO. If both members of a couple were eligible for SATO, and they do not fully use the SATO (for example, you earnt less than $26,680 for the 2011/2012 year or for the 2010/2011 year) then you may have been able to transfer the unused portion to the other member of the couple.

If a couple’s income exceeded the cut-out income threshold of $78,992 (for the 2011/2012 or for the 2010/2011 year), they were no longer eligible for the offset. A couple is then treated like any other taxpayer and is taxed on taxable income less the $6,000 threshold (confirm your specific tax position with your accountant or the ATO).

SATO for 2009/2010 year

 

A couple earning rebate income greater than $51,360 a year (for 2009/2010) were still eligible for the Senior Australians Tax Offset but they would receive a lower tax offset, which meant that some tax would be generally payable. SATO applied to ‘rebate income’ of up to $47,707 for a single person and $76,992 ($38,496 each) for a couple (for the 2009/2010 year), which meant you still paid tax but not as much.

Note: If an individual’s or couple’s income exceeded the cut-out income threshold, they were no longer eligible for the Senior Australians Tax Offset. Such a taxpayer must then rely on the tax offsets, such as LITO, that apply to all eligible taxpayers.

SATO thresholds for 2009/2010 year
CategoryFull Offset Income ThresholdCut-Out Income ThresholdMaximum Tax Offset Available
Single$29,867$47,707$2,230
Couple (each)*$25,680$38,496$1,602
Couple (combined)$51,360$76,992$3,204*
Couple (each, living apart due to illness)$28,600$44,920$2,040
*A couple is tested on combined income for SAPTO eligibility. If combined income is less than combined SAPTO threshold, then each member of a couple is tested separately for SATO eligibility, and also whether the unused portion (if any) of spouse’s SAPTO can be transferred.

Notes: Combined effect of the SATO and LITO is that, at maximum tax offset eligibility, no tax is payable. ‘Rebate income’ above the cut-out thresholds means no SATO is available, and a part offset is available for income between full offset and cut-out income threshold. The SATO reduces by 12.5 cents for each $1 of taxable income above the Full Offset Income Threshold (officially known as the ‘Shade-out threshold’).

Note: Each member of a couple is tested separately for SATO eligibility. If a member of a couple earnt more than the cut-out income threshold ($38,496) for 2009/2010 year, then that member of the couple was not eligible for SATO. If both members of a couple were eligible for SATO, and one member of the couple does not fully use the SATO (for example, you earnt less than $25,680 for 2009/2010 year) then you may be able to transfer the unused portion to the other member of the couple.

If a couple’s income exceeded the cut-out income threshold of $76,992 (for 2009/2010 year), they were no longer eligible for the offset for that year. A couple was then treated like any other taxpayer and was taxed on taxable income less the $6,000 threshold (confirm your specific tax position with your accountant or the ATO).

SATO for 2008/2009 year

Note: Reportable super contributions are not counted as income for SATO eligibility for the 2008/2009 year.

SATO thresholds for 2008/2009 year
CategoryFull Offset Income ThresholdCut-Out Income ThresholdMaximum Tax Offset Available
Single$28,867$46,707$2,230
Couple (each)*$24,680$37,496$1,602
Couple (combined)$49,360$74,992$3,204*
Couple (each, living apart due to illness)$27,600$43,920$2,040
*A couple is tested on combined income for SAPTO eligibility. If combined income is less than combined SAPTO threshold, then each member of a couple is tested separately for SATO eligibility, and also whether the unused portion (if any) of spouse’s SAPTO can be transferred.

Comments

  1. What is SAPTO?

    • Hi Joe
      SAPTO is explained in the article above, and we have set out the relevant text below:

      “Seniors & Pensioners Tax Offset (SAPTO): The SAPTO means that a couple who has reached Age Pension age, can earn a ‘rebate income’ of up to $28,974 each ($57,948 combined) for the 2015/2016 year without paying income tax, subject to certain conditions. This ‘rebate income’ is in addition to any super benefits from a taxed source.”

      Hope this helps.
      Cheers
      The SuperGuide Team

  2. Robert Burns says:

    Lots of useful information BUT the article totally misses the point that in order to receive SAPTO one must be in receipt of an old age pension (or part thereof) or other AustGov allowance.

    Thus self funded retirees do not receive SAPTO.

    See the test for T1 (seniors and pensioner’s tax offset) where one must be in one of the following categories:
    A- you receive old age pension (or part) and show taxable $ in income section I6.
    B->10yrs at age pension age + other conditions (eg aged >75yrs)
    C-veteran

  3. Mick Hunter says:

    I’m puzzled about the SAPTO Eligibility test for a person who is living with a spouse.

    From http://www.ato.gov.au/Rates/Household-Assistance-Package—tax-reforms/?default=&page=5
    SAPTO 2012 – 13
    The test effectively says:-
    If you had a spouse and the COMBINED rebate income of you and your spouse was less than
    $57,948, you are eligible for the full tax offset of $1602. Above this figure, the tax offset reduces linearly to zero at a COMBINED rebate income of $83,580.

    Also, the Individual tax return instructions 2013 for T2 talk only about COMBINED rebate income.

    However, in a note below your eligibility Table, you say:-
    Note: Each member of a couple is tested SEPARATELY for SAPTO eligibility. If a member of a couple earns more than the cut-out income threshold ($41,790 for the 2012/2013 or 2013/2014 year), then that member of the couple is not eligible for SAPTO

    So, is eligibility based on separate or combined rebate income?

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