Reducing tax paid with tax offsets for age pensioners

As a pensioner, you may be eligible for the seniors and pensioners tax offset (SAPTO).

Seniors and pensioners tax offset

How does the Senior Australians and Pensioners Tax Offset (SAPTO) work?
SAPTO is a tax offset that’s available to eligible seniors and pensioners in Australia. SAPTO can reduce the amount of tax you are liable to pay. In some cases, it may reduce your tax liability to zero and you may not have to lodge a tax return.

To be eligible for this tax offset, you have to meet certain conditions relating to your income and eligibility for an Australian Government pension or allowance.

If you're a senior, you must meet the age requirement for the Age Pension. This includes if you qualified for the Age Pension but did not receive it.

Depending on your rebate income, you may receive a full, partial or nil offset amount.

If you have a spouse, you will be tested on your combined rebate income for the SAPTO eligibility. The amount of the tax offset is based on your individual rebate income.

In some cases, if you are both eligible for SAPTO, you may be able to transfer your spouse's unused offset to you. The Australian Taxation Office (ATO) calculates its transfer amount and includes this amount when calculating your SAPTO.

The ATO provides an online tool to help calculate whether you are eligible for the benefit and the amount of offset that you qualify for.

What is your rebate income?
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 are eligible to claim.
  • Your reportable employer super contributions (if any). Reportable super contributions are any contributions that your employer makes on your behalf that are above the compulsory superannuation guarantee.
  • Your deductible personal super contributions (if any). Deductible personal super contributions are any that you have voluntarily made to a super fund and that you have 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 investment schemes.
  • 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 that the rebate income threshold does not include any income you may be receiving from super. That is because if you are aged over 60, your super funds are tax-free.

Are you eligible for SAPTO?
The first condition you must satisfy is that you received a Australian Government pension or allowance from Centrelink of from the Department of Veterans Affairs.

You may also be eligible if you did not receive a benefit or allowance if you did not receive it because you did not make a claim or because of the application of the income test or the assets test.

If you did not receive an allowance for one of these reasons, you also have to have been an Australian resident for age-pension purposes for either 10 continuous years or for more than 10 years of which five years were continuous unless you have a qualifying residence exemption or you are a woman who was widowed in Australia (at a time when both you and your late partner were Australian residents), you have made a claim for the age pension and you had two years residence immediately before your claim.

There is also an income component to claiming SAPTO. To satisfy the income requirement your rebate income has to be less than $50,119 if you do not have a spouse.

If you have a spouse your combined rebate income has to be less than $83,580 to qualify for SAPTO.

Transferring SAPTO to your spouse
When transferring unused SAPTO, both you and your spouse must be eligible to claim the offset and be either – an eligible couple:

  • living apart due to illness with a rebate amount of $2040 each
  • living together with a rebate amount of $1602 each.

If your spouse has taxable income greater than $6000, the ATO calculates their unused SAPTO amount with the formula:

A − ((B − $6,000) × 0.15)

  • A equals the spouse's rebate amount for the year
  • B equals the spouse's taxable income plus exempt pension income for the year.

If your spouse is a foreign resident and their taxable income is greater than zero, the ATO calculates your spouse’s unused SAPTO amount with the following formula:

A − (B × marginal tax rate)

  • A equals your spouse's rebate amount for the year
  • B equals your spouse's taxable income for the year.

If your spouse is a foreign resident and received an Australian government pension or allowance, the ATO calculates your spouse’s unused SAPTO amount as if they were a resident.

Case study
Step one: Calculating your spouse’s unused SAPTO
Your spouse's rebate amount is $2040 and their taxable income is $10,000. The calculation would be:

  • $2040 − (($10,000 − $6000) × 0.15)
  • $2040 − (($4000) × 0.15)
  • $2040 − $600 = $1440

In this situation $1440 of your spouse's unused SAPTO is available for transfer to you if you are eligible.

Where your spouse's taxable income is $6000 or less, no income tax is payable and the full value of their SAPTO rebate amount – for example, $2040 – would be available for transfer to you if they are eligible.

Step two: Calculating your rebate threshold
Your SAPTO will be reduced by 12.5 cents for every dollar over your rebate threshold.

Your rebate threshold is calculated as follows:

A. Maximum tax offset that applies to you = $2040

B. Add your spouse's unused tax offset from step one of $1440 to A = $3480

C. Add the maximum low income tax offset of $445 to B = $3925

D. Divide C by the lowest marginal tax rate of 0.19 = $20,657.89

E: Add the income tax-free threshold of $18,200 to D = $38,857,89

F. Is the amount in step E greater than the rebate reduction threshold of $37,000?

  • if No, your rebate threshold is the amount calculated in step E and go to step three for the SAPTO calculation.
  • if Yes, continue with the steps below and your rebate threshold will be the amount calculated at step P

G. Add the second lowest marginal tax rate of 0.325 to the low income tax offset reduction rate of 0.015 = 0.34

H. Subtract the lowest marginal tax rate of 0.19 from G = 0.15

I. Multiply H by the rebate reduction threshold of $37,000 = $5550

J. Multiply the lowest marginal tax rate of 0.19 to the tax-free threshold of $18,200 = $3458

K. Add the maximum low income tax offset of $445 to J = $3903

L. Add the maximum tax offset that applies to you of $2040 to K = $5943

M. Add your spouse's unused tax offset of $1440 to L = $7383

N. Add I and M = $12,933

O. Add the rebate reduction rate of 0.0125 to second lowest tax rate of 0.325 = 0.34

P. Divide N by O = $38,038 (Rounded to the nearest dollar)

Your SAPTO will be reduced by 12.5 cents for every rebate income over your rebate threshold of $38,038.

Step three: Calculating your SAPTO
Your SAPTO will be reduced by any amount over the rebate threshold calculated in step two.

A. Your maximum tax offset is $2040

B. Your rebate income is $48,000

C. Subtract your rebate income of $48,000 by your rebate threshold calculated in step two of $38,038 = $9962

D. Multiply C by the rebate reduction rate of 0.125 = $1245.25

E. Subtract D from A = $794.75

F. Add your spouse's unused tax offset from step one of $1440 to E = $2234.75

Your SAPTO is calculated to be $2235 (rounded) after transferring your spouse's unused tax offset to you.

Are you eligible for an Age Pension? Do you know your rights? The PensionChecker™ tool has all the information you need.

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Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.





    COMMENTS

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    older&wiser
    5th Jul 2019
    10:13am
    Utterly way too complicated - made deliberately so. And NOT a real incentive.
    Also - a complaint re above - WHY are examples ALWAYS given for married couples? Even on Aust Govt pages, examples are always done for couples. And it is not as simply dividing in half for a single. Again, the narrow minded belief that only married people/couples are on the Aged Pension. There are probably MORE single people on it.
    Anonymous
    5th Jul 2019
    2:45pm
    The calculation they do is only applicable if you have a spouse it does not apply to singles.
    adbob
    5th Jul 2019
    10:47am
    "You may also be eligible if you did not receive a benefit or allowance if you did not receive it because you did not make a claim or because of the application of the income test or the assets test."

    That's true - but the linked ATO "online tool" doesn't make that clear - which might put many people off from claiming.
    Keithb
    5th Jul 2019
    12:54pm
    Yes I hate the way it sounds so complicated. As I understand it for anyone over pension age it has the effect of increasing your tax free threshold by a few 1000 dollars above $18,200. Sorry dont have the exact figure on hand but it's very handy if your trying to keep your taxable income under that limit.
    Anonymous
    5th Jul 2019
    2:50pm
    Not complicated it only takes a letter of "N" if single or "y" if you have a spouse under item T1 in tax offsets
    geordie
    5th Jul 2019
    2:32pm
    But why is it always the case that 1. We have to know about it first and 2. Then have to apply for it ourselves. Surely the all knowing all powerful ATO should have a computer program which would calculate this from your tax return and automatically apply it to you.
    Jim
    5th Jul 2019
    3:17pm
    I was a little confused before, now I am totally confused. Maybe someone smarter than me can advise me, I sold some BHP shares in the recent buy back scheme, the buy back put a share price of 38 cents per share which is a significant loss from a capital gain/loss perspective, does that mean I can claim this capital loss and reduce the tax payable, I was under the impression that I could only claim a capital loss against a capital gain. The money involved is not a fortune and I wasn’t expecting to get a refund of any tax paid, anyone got any ideas?
    Anonymous
    5th Jul 2019
    4:30pm
    No you can't Jim Capital loss only reduces capital gain if you have no capital gain you carry the loss forward until another year. BHP do have a part franked dividend so you should probably get back the franking credit.
    Anonymous
    5th Jul 2019
    4:30pm
    No you can't Jim Capital loss only reduces capital gain if you have no capital gain you carry the loss forward until another year. BHP do have a part franked dividend so you should probably get back the franking credit.
    Jim
    5th Jul 2019
    5:06pm
    Thanks Roby, that’s how I understood it, but wasn’t sure.
    Eddy
    5th Jul 2019
    6:39pm
    Agree with previous comments SAPTO is tooooo complicated. Every year when I do my on-line tax return the ATO app states that, based on the information I have submitted, I am not eligible for SAPTO. I do not know why and, based on this article, I am still no wiser. Another of life's little mysteries.
    Anonymous
    6th Jul 2019
    11:48am
    Eddy ring the Taxation Department and explain your situation or go to a Tax agent and pay him to do the form properly as people who use the online form are sometimes robbing themselves This rebate is worth a lot and you can have previous tax years amended if you buggered them up.
    McDaddy
    6th Jul 2019
    9:22pm
    It's either because your Taxable Income is too high, or you are not Age Pension age or above