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.

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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

    To make a comment, please register or login
    johnp
    20th Mar 2020
    3:48pm
    Can someone enlighten me as I am confused where it said :
    "
    Where your spouse's taxable income is $6000 or less, no income tax is payable
    "
    appears to contradict :
    "
    the income tax-free threshold of $18,200
    "
    ??
    Taragosun
    22nd Mar 2020
    3:31pm
    The tax free threshold is currently $18,200. The tax-free threshold means that you won’t have to pay tax on income you earn below this amount.

    From the example above:
    "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."

    It just means that if your spouse has a taxable income of $6,000 or below that NO tax is payable (because the tax free threshold is $18,200 per person).
    BUT, their SAPTO rebate could possibly be transferred to you.

    Hope this helps you understand.
    johnp
    22nd Mar 2020
    4:38pm
    thanks very much taragosun, that helps..
    Also please can YourLifeChoices please get rid of LM !!
    johnp
    21st Mar 2020
    8:09am
    Can YourLifeChoices please get rid of LM !!
    mkarelia
    7th Aug 2020
    10:30am
    There is a slight mistake in step O. Instead of "Add the rebate reduction rate of 0.0125 to second lowest tax rate of 0.325 = 0.34" it should be "Add the low income tax offset reduction rate of 0.015 to second lowest tax rate of 0.325 = 0.34". See the formula in regulation 150AB(3A). Both in nominator is stepped G and in the denominator, in O they use "the rate at which the rebate of tax under subsection 159N(2) of the Act is reduced", which is the LITO reduction rate currently of 0.015.


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