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How does SAPTO work? (Senior Australians and Pensioners Tax Offset)

How does SAPTO work? (Senior Australians and Pensioners Tax Offset)

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The Senior Australians and Pensioners Tax Offset (SAPTO) won’t shower you in riches. But depending on your age, relationship status and income, it could provide a handy tax offset of up to $2,230.

Before you get too excited, a heads up. The devil is in the detail and some retirees may feel short-changed.

What is a tax offset?

A tax offset can reduce the amount of income tax you pay, but it doesn’t mean you get a refund of any offset amount remaining once your tax bill is reduced to zero. You’ll also still need to pay the Medicare levy if you’re not eligible for an exemption or reduction.

The Australian Taxation Office (ATO) assesses your eligibility when you submit your tax return.

Background: The Senior Australians and Pensioners Tax Offset (SAPTO) is effectively a combination of the Senior Australians Tax Offset (SATO) and Pensioner Tax Offset (PTO), which were available in the 2011–12 and earlier income years. SAPTO replaced these two offsets and has been available to eligible pensioners from the 2012–13 income year onwards.

Who is eligible for SAPTO?

There are two eligibility requirements for the SAPTO:

1. You must be eligible to receive the Age Pension or Department of Veterans’ Affairs (DVA) Pension.

The Age Pension age in Australia currently depends on your date of birth. The minimum age from 1 July 2021 is 66 years and 6 months, and this will rise to 67 from 1 July 2023. The minimum age for the DVA pension is 60.

2. You must pass a rebate income threshold test to determine whether you’re entitled to a full or partial offset.

Your rebate income is the total of the following items:

  • Your taxable income (if any). Your taxable income is your assessable income less any deductions that you’re eligible to claim.
  • Your reportable employer super contributions (if any). Reportable employer super contributions are any contributions that your employer makes on your behalf that are above the compulsory Superannuation Guarantee (currently 10% of salary or wages).
  • Your deductible personal super contributions (if any). Deductible personal super contributions are any that you have voluntarily made to a super fund and claimed as a tax deduction on your tax return. To claim a tax deduction for personal super contributions, you must have notified your fund of your intention to do so and received an acknowledgment in writing from them.
  • Your net financial investment loss (if any). This includes any loss you may have made from investing in assets like shares or managed funds.
  • Your net rental property loss (if any). A net rental property loss occurs when your expenses associated with the property exceeds the rental income it generates. This is known as negative gearing.
  • Your fringe benefits (if any). Fringe benefits include any benefits that your employer provides as part of your salary package, such as a company car for private use, or the reimbursement of personal expenses.

Note: The rebate income threshold doesn’t include any income you may be receiving from super. That’s because income from super is generally tax-free if you’re aged over 60.

What are the SAPTO thresholds for singles?

If you’re single, your total rebate income must be less than $32,279 for the financial year to be eligible for the maximum SAPTO of $2,230.

The SAPTO progressively reduces by 12.5 cents for every dollar over this amount, up to a rebate income level of $50,119 (where the offset cuts off completely).

The SAPTO at various individual rebate income levels is shown in the table below.

Single rebate incomeTax offset
Less than $32,279$2,230.00
$34,000$2,014.88
$36,000$1,764.88
$38,000$1,514.88
$40,000$1,264.88
$42,000$1,014.88
$44,000$764.88
$46,000$514.88
$48,000$264.88
$50,000$14.88
$50,119$0

Source: Estimates interpreted by SuperGuide according to information published by the ATO.

Note: These figures cover the 2016-17 financial year through to and including the 2020–21 financial year.

Try SuperGuide’s income tax calculator to understand the offsets and levies that may apply to you, and also discover your effective tax rate.

Example

Lisa is 66 and still works part time. Her rebate income is $36,000, calculated as follows:

Taxable income: $31,000

plus

Deductible personal super contributions: $5,000.

She has no reportable employer super contributions (i.e. amounts above the 10% compulsory super guarantee) to add for rebate income calculation purposes, nor does she receive any fringe benefits.

She also doesn’t have any investment or rental property losses to deduct from her rebate income calculation.

Lisa has a rebate income of $36,000, so it’s estimated that she’s entitled to a SAPTO of $1,764.88.

Can you apply the Low Income Tax Offset (LITO) and SAPTO at the same time?

Yes, the Low Income Tax Offset (LITO) can be applied by the ATO in conjunction with SAPTO. You’re entitled to a LITO of $700 if your taxable income is less than $37,500. LITO reduces by 5 cents for each dollar of taxable income above $37,500, and reduces a further 1.5 cents for every dollar above $45,000, before it cuts out completely when your taxable income reaches $66,667.

Example

Continuing with the example of Lisa, her income level entitles her to the maximum LITO of $700, in addition to her SAPTO of $1,765.

What are the SAPTO thresholds for couples living together?

If you have a spouse and you’re living together, your combined rebate income is tested to determine your SAPTO eligibility. This combined income must be less than $57,948 for you to receive the maximum combined spousal SAPTO of $3,204.

The spousal SAPTO progressively reduces by 12.5 cents for every dollar of combined rebate income levels higher than this amount, up to $83,580 (where the offset cuts off completely).

The SAPTO for couples living together at various combined rebate income levels is shown in the table below:

Combined rebate incomeMaximum tax offset
Less than $57,948$3,204 ($1,602 each)
$60,000$2,948 ($1,474 each)
$62,000$2,698 ($1,349 each)
$64,000$2,448 ($1,224 each)
$66,000$2,198 ($1,099 each)
$68,000$1,948 ($974 each)
$70,000$1,698 ($849 each)
$72,000$1,448 ($724 each)
$74,000$1,198 ($599 each)
$76,000$948 ($474 each)
$78,000$698 ($349 each)
$80,000$448 ($224 each)
$82,000$198 ($99 each)
$83,580$0

Source: Estimates interpreted by SuperGuide according to information published by the ATO.

Note: These figures cover the 2016–17 financial year through to an including the 2020–21 financial year.

Example

Dan and Kate are married and both on the Age Pension. Their combined rebate income is $62,000. They are eligible for a SAPTO of $1,349 each ($2,698 combined).

What if you’re a couple and only one of you is eligible for the SAPTO?

If you’re eligible for SAPTO and your spouse is not, the ATO still considers your combined rebate income as a couple to determine your eligibility in the first instance.

If you’re below the maximum combined rebate income threshold, you could still be entitled to the SAPTO.

However, the amount of offset you are entitled to will be calculated on your rebate income alone.

This two-step eligibility process leads to some perverse outcomes, which are best illustrated with an example.

Example

John and Jenny are married and live together in retirement. John is 66 and Jenny is 62. John has reached Age Pension age, but Jenny hasn’t. John is potentially eligible for the SAPTO if he and Jenny’s combined rebate income is lower than the maximum SAPTO threshold.

Their combined rebate income is $62,000, which is below the $83,580 combined income threshold for couples.

As John’s actual rebate income was $31,000, which is below the cut-off individual threshold of $41,790 (half the couples combined threshold of $83,580), he is eligible to receive SAPTO of $1,349.

Jenny is not entitled to the SAPTO because she hasn’t reached Age Pension age.

But what if John’s actual rebate income was $44,000 and Jenny’s was $18,000? They still have combined rebate income of $62,000 but, in this instance, John would not be eligible for any SAPTO because his actual rebate income is above the $41,790 cut-off.

Jenny is still not entitled to SAPTO because she is below Age Pension age.

What’s more, if John was single with rebate income of $44,000, he would receive SAPTO of $765.

Confusing? Yes. Inequitable? Yes. It means couples may have the same combined income, but only some will receive any SAPTO depending on the individual contributions to their combined income.

To see more worked examples of how SAPTO is calculated, go to the ATO Seniors and Pensioners Tax Offset page.

To work out your potential eligibility for SAPTO, go to the ATO Senior and Pensioners Tax Offset calculator.

Can you transfer any unused SAPTO amounts between you and your spouse?

It’s important to remember that tax offsets (like SAPTO) can only be used to offset tax you owe; they can’t give you a refund from the ATO.

That means it’s possible for a person to not use all their SAPTO. In this situation you can transfer your excess SAPTO to your spouse, provided they’re eligible to receive it.

This is best illustrated with another example.

Example

Paul and Joanne are married and live together in retirement. They’re both 68 years old. Their combined rebate income is $48,000 making them both eligible for the maximum SAPTO of $1,602.

However, Joanne has no taxable income and pays no tax, so she can’t use her SAPTO to reduce or eliminate tax.

But Paul does have taxable income. Joanne can transfer her SAPTO of $1,602 to Paul to help him reduce his tax payable.

This transfer would be done automatically by the ATO when assessing Paul and Joanne’s tax returns.

If Joanne had a taxable income greater than $6,000 (rather than no taxable income) and didn’t use all her SAPTO, the amount she would be eligible to transfer to Paul would be automatically calculated by the ATO using the following formula:

Joanne’s SAPTO rebate amount minus ((her taxable income minus $6,000) x 0.15)

Again, this is best illustrated using an example.

Suppose Joanne had a taxable income of $15,000 (rather than none). The ATO formula would be applied as follows:

$1,602 – ((15,000 – $6,000) x 0.15)

= $1,602 – $1,350

= $252

Therefore $252 is the available SAPTO that Joanne could transfer to Paul.

This is a simplified example for illustrative purposes only. The actual combined SAPTO amount Paul receives will depend on a complex calculation using his rebate income, taxable income, and the amount of LITO he is entitled to.

For a more detailed calculation see the ATO Transferring the seniors and pensioners tax offset.

What are the SAPTO thresholds for couples separated due to illness?

If you and your spouse are separated due to illness, the offset amount and the minimum and maximum rebate income thresholds that you’re entitled to are all higher to reflect that your combined living expenses are likely to be higher.

Your combined rebate income must be less than $62,558 for you to receive the maximum combined spousal SAPTO of $4,080 ($2,040 each).

The spousal SAPTO progressively reduces by 12.5c in the dollar for combined rebate income levels higher than this amount, up to $95,198 (where the offset cuts off completely).

The SAPTO for couples separated due to illness at various combined rebate income levels is shown in the table below.

Combined rebate incomeMaximum tax offset
Less than $62,558$4,080 ($2,040 each)
$64,000$3,900 ($1,950 each)
$66,000$3,650 ($1,825 each)
$68,000$3,400 ($1,700 each)
$70,000$3,150 ($1,575 each)
$72,000$2,900 ($1,450 each)
$74,000$2,650 ($1,325 each)
$76,000$2,400 ($1,200 each)
$78,000$2,150 ($1,075 each)
$80,000$1,900 ($950 each)
$82,000$1,650 ($825 each)
$84,000$1,400 ($700 each)
$86,000$1,150 ($575 each)
$88,000$900 ($450 each)
$90,000$650 ($325 each)
$92,000$400 ($200 each)
$94,000$150 ($75 each)
$95,198$0

Source: Estimates interpreted by SuperGuide according to information published by the ATO.

Note: These figures cover the 2016–17 through to and including the 2020–21 financial year.

Example: Tom and Ann are married and both on the Age Pension. However, they’re not living together because Tom has an illness and requires ongoing medical care in a nursing home. Their combined rebate income is $68,000. They are each eligible for a SAPTO of $1,700.

If Tom has no taxable income, he may be able to transfer some of his SAPTO to Ann. Once again, for a more detailed calculation see the ATO Transferring the seniors and pensioners tax offset.

The bottom line

The ATO guidelines around SAPTO are complex and, for some couples, confusing and potentially inequitable.

Whatever your circumstances, we suggest you go to the ATO Senior Australians and Pensioners Tax Offset (SAPTO) calculator to work out how much SAPTO you might be eligible for.

Disclaimer: The contents of this article are for the purposes of providing general information only. You should seek appropriate advice from a tax adviser, accountant or financial adviser before making any investments or implementing strategies involving your tax or superannuation interests.

Learn more about income tax rates and thresholds in the following SuperGuide articles:

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