No tax in retirement because you SAPTO (updated rates)

This article is updated annually with new rates, or periodically to highlight changes (if any) to the Seniors & Pensioners Tax Offset (SAPTO) rules. This article includes SAPTO rates for the 2014/2015, 2013/2014, and 2012/2013 years, and SATO rates for the 2011/2012, 2010/2011, 2009/2010 and 2008/2009 years. Since 1 July 2012, the Senior Australians Tax Offset (SATO) has been renamed as the Seniors and Pensioners Tax Offset (SAPTO). Latest article update was 24 March 2015.

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. Most Australians receive super benefits from a taxed source, unless you’re a member of one of the older public sector super funds.

The tax consequences of the superannuation rules are fantastic for those senior Australians eligible for the Seniors and Pensioners Tax Offset (SAPTO), and are still pretty enticing even for those Australians not eligible for the SAPTO (see later in the article for an explanation of SAPTO).

  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) and the low income tax offset (LITO) of up to $445 (for the 2014/2015, 2013/2014, and 2012/2013 years). For the 2010/2011 year, the tax-free threshold was $6,000 (if under Age Pension age) and the LITO was up to $1,500.
  2. If you’re under Age Pension age, you can earn non-super income of up to $20,542 for the 2014/2015 year (or for the 2013/2014 year, or for the 2012/2013 year) 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. 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 2014/2015 year (or for the 2013/2014 year, or for the 2012/2013 year) in non-super income without paying a cent of tax because of the application of SAPTO and LITO.
  4. This $32,279 of ‘income’ for the 2014/2015 year (and also for the 2013/2014 year, and for the 2012/2013 year) 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 2014/2015 year and also for the 2013/2014 and 212/2013 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. 

Note: 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 have reached Age Pension age, can earn a ‘rebate income’ of up to $28,974 each ($57,948 combined) for 2014/2015 year (and also for the 2013/2014 year, and for the 2012/2013 year) without paying income tax, subject to certain conditions.

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 can enjoy even greater tax-free income.

Medicare levy may still be payable

Medicare levy may still be payable even where income tax is not payable due to SAPTO. If a single person eligible for SAPTO earns $32,279 (for the 2014/2015 year), then no tax is payable, and no Medicare levy is payable. If a single person eligible for SAPTO earns more than $32,279 but less than $37,975, then the person is required to pay 10% of the excess above $32,979. If a single person eligible for SAPTO earns more than $37,975 then 2% Medicare levy is payable. For the Medicare lev treatment of couples eligible for SAPTO see ATO website.

And there’s more…

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 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) are 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 the 2014/2015 year (and for 2013/2014 year).

SAPTO thresholds for 2014/2015, 2013/2014, or for 2012-2013 year
Category Full Offset Income Threshold Shade-Out Income Threshold Maximum 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
*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).

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

Important: SAPTO regulations still out of date

Well-spotted by one of our vigilant readers, the legislation supporting the transfer of the unused portion of a spouse’s SAPTO rebate to the other spouse, is out of date. Our clever reader writes: “Couples entitled to the Seniors and Pensioners Tax offset (SAPTO) are not receiving their spouses unused rebate due to an outdated regulation. The intention (of INCOME TAX REGULATIONS 1936 – REG 150AE Transfer of unused rebate from taxpayer other than trustee subregulations (2)(b), (11), (12) and (13)) is to transfer the unused rebate, that is Taxpayer 2’s rebate is increased by Taxpayer’s 1 excess rebate.

“REG 150AE subregulations (11), (12) and (13) are based on a tax free threshold of $6,000 and 15% tax, but the tax free threshold is now $18,200 and 19% tax, which means the limits and formula in REG 150AE subregulations (11), (12) and (13) no longer achieve their intended objective.

“The result of applying the current regulation (as does the ATO, see Beneficiary tax offset and seniors and pensioners tax offset calculator 2013-14) is that the incorrect amount (by a very large margin) of unused rebate is being transferred.”

Our reader quite rightly demands that the regulation be changed. He says: “REG 150AE subregulations (11), (12) and (13) should be changed so that they are based on and refer to the tax rates specified in the table in Part 1 of Schedule 7 to the Income Tax Rates Act 1986, so that the correct amount of unused rebate is transferred, even if the tax rates change again in the future.”

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 the 2014/2015 year (and for 2013/2014 year).

SATO thresholds for 2011-2012 year, or for 2010-2011 year
Category Full Offset Income Threshold Cut-Out Income Threshold Maximum 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).

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

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
Category Full Offset Income Threshold Cut-Out Income Threshold Maximum 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
Category Full Offset Income Threshold Cut-Out Income Threshold Maximum 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.

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Comments

  1. 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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