This article is periodically updated with new rates, or to highlight changes to the Senior Australians Tax Offset rules. The latest article update, adding commentary on ‘rebate income’, occurred on 11 December 2009.
The superannuation tax rules are not the only tax benefits that you can take advantage of in retirement. If you are aged 60 or over, your superannuation benefit from a taxed source is not included as part of your assessable income.
The tax consequence of the super rules is quite incredible: you can earn non-super income in addition to your tax-free super benefit and take advantage of the tax-free threshold of $6,000 (if under Age Pension age) and the low income tax offset (LITO) of up to $1,350 (for the 2009/10 year). If you’re under Age Pension age, you can earn non-super income of up to $15,000 (for the 2009/10 year) before any tax is payable.
The tax rules get even better when you reach the age of 65. If you’re Age Pension age (currently 65 for men and 63.5 years (and 64 from January 2010) for women) or older, you may be able to access more generous tax-free thresholds, known as the Senior Australians Tax Offset (SATO). If you’re single, you can earn up to $29,867 (in 2009/10) in non-super income without paying a cent of tax because of the application of SATO and LITO. This $29,867 of ‘income’ is in addition to any superannuation benefit that you receive from a taxed source.
Note: The income test for SATO is based on income known as ‘rebate income’ which includes:
- taxable income
- personal deductible contributions and Superannuation Guarantee contributions (reportable super contributions)
- total net investment loss
- adjusted fringe benefits (reportable fringe benefits x 0.535)
A couple who have reached Age Pension age, can earn a ‘rebate income’ of up to $25,680 each ($51,360 combined) without paying income tax, subject to certain conditions. Again, this 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 can enjoy even greater tax-free income.
And there’s more…
A couple earning rebate income greater than $51,360 a year (for 2009/10) are still eligible for the Senior Australians Tax Offset but they will receive a lower tax offset, which means that some tax is generally payable. SATO applies to ‘rebate income’ of up to $47,707 for a single person and $76,992 ($38,496 each) for a couple (for the 2009/10 year), 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 Senior Australians Tax Offset. Such a taxpayer must then rely on the tax offsets, such as LITO, that apply to all eligible taxpayers.
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Notes: Combined effect of the SATO and LITO is that, at maximum tax offset eligibility, no tax is payable. Taxable 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.
Table source: Superannuation: Planning Your Retirement For Dummies, by Trish Power (Wiley) Reproduced with permission. Updated for 2009/10 thresholds.
Note: Each member of a couple is tested separately for SATO eligibility. If a member of a couple earns more than the cut-out income threshold ($38,496), then that member of the couple is not eligible for SATO. If both members of a couple are eligible for SATO, and you do not fully use the SATO (for example, you earn less than $25,680) 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 $76,992 (for 2009/10 year), they are no longer eligible for the offset. A couple is then treated like any other taxpayer and is taxed on taxable income less the $6000 threshold (confirm your specific tax position with your accountant or the ATO).
For those preparing tax returns for the 2008/09 year, the SATO thresholds for the 2008/09 financial year are listed in the table below. Note that reportable super contributions are not counted as income for SATO eligibility for the 2008/09 year.
Table source: Superannuation: Planning Your Retirement For Dummies, by Trish Power (Wiley) Reproduced with permission.
For the full terms and conditions of SATO, check out the ATO website and read the fact sheet, ‘What is the Senior Australians Tax Offset?’
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Copyright Trish Power
Hi - I'm Trish Power and I am the author of 
I turned 60 june 2007 am retired, sold my large house down graded invested spare money into my super believing I would be making $25.000 per year till age 65 one month after I invested I lost $50.000 just like that.
I would like to know what the chances of the government increasing the cut off for this Super Scheme from 65 to maybe 67 to give those of us that did this a chance to recover some of the money lost and make a little.
Saying this I would like to remind that Government has already legislated that retirement age is going up gradually anyway.
would love some feed back regarding this.
My tax return shows that a married aged pensioner who’s wife is under aged pension but receiving partnet allowance does not receive the benifit of the wifes SATO benifit, and at the same time his SATO is reduced to $24680.00.
It seems as though a married pensioner and a single pensioner paying tax at the single rate are assesed differently.
If a married pensioner receives no benifit from his wife under SATO he should be taxed as a single person…this would raise his threshold to $29867.00…thank you
Hi Elle
Sorry for the delay in responding, and very sorry to hear about your situation. I’m hoping that the rise in the sharemarket since March 2009 (with the exception of a bumpy October 2009) has helped your situation. I’m not 100% certain of the question that you’re asking, but I’m guessing that you’re referring to the old rules ( no longer applicable) that required you to cash out your super monies, or start an income stream, at the age of 65 unless you satisfied a work test. This is no longer the case. An individual can keep savings in the super system indefinitely without starting an income stream, or wothdrawing a lump sum. If they do however, any earnings on those fund assets are subject to 15% earnings tax. Individuals can contribute to super up to the age of 74 (although anyone aged 65 to 74 must satisfy a work test), which gives those individuals able to work additional opportunity to boost super savings.
The age 65 is relevant for those who want to continue working, because when you turn 65, you can access your super benefits without retiring or satisfying another condition of release. The Government has announced that it has no intention of extending the retirement age of 65 for the purposes of accessing super, although Age Pension age is increasing to age 67 over time.
Note: If an individual has reached their preservation age (currently 55 but rising to age 60 depending on your birth date) and retired, then they can access super benefits. You can find out more by reading other articles on our SuperGuide website. If I have misunderstood your question, please let me know.
Regards Trish