Page 10 - Wealth-Adviser-Issue-137 (FWP)

ISSUE 137
MAY 2026

This is what makes the work bonus work for seasonal or single, or $1,602 for each member of an eligible couple
irregular employment: a retiree who does no paid work for ($3,204 combined). Eligibility is based on rebate income —
ten fortnights and then earns $3,000 in a single fortnight broadly, taxable income plus reportable employer super con-
can apply $3,000 of accrued credit against that earnings, tributions, deductible personal super contributions, certain
with nothing flowing through to the income test. investment losses, and adjusted fringe benefits. For 2024–25
New Age Pensioners now also receive a one-off $4,000 the rebate income shade-out thresholds are $34,919 (single)
starting credit when they first become eligible for the and $30,994 each (partnered), with cut-outs of $52,759
pension, which was made permanent in 2024 after originally (single) and $43,810 each (partnered). These thresholds
being introduced as a temporary measure. The credit is are typically uprated through annual indexation, with the
added to the work bonus balance from the date of grant. 2025–26 and 2026–27 figures confirmed by the ATO as the
Beyond the work bonus, the standard Age Pension relevant year approaches.
income test applies. The income-free area is currently $218 Combined with the tax-free threshold and the Low
a fortnight for singles and $380 a fortnight for couples Income Tax Offset, SAPTO can lift the effective no-tax
combined. Above those thresholds, the pension reduces by threshold for a single eligible senior from $18,200 to
50 cents in the dollar for singles, or 25 cents in the dollar for approximately $33,886 (rising slightly under indexation).
each member of a couple. Once income reaches the upper For couples where both qualify, each partner can earn
cut-off — around $2,620 a fortnight for singles or $4,001 roughly $31,888 before income tax becomes payable. This is
a fortnight combined for couples — the pension cuts out the key reason why a self-funded retiree working part-time
entirely. can often have a meaningful employment income with very
Put together, the work bonus and the income-free area modest tax payable, particularly where their super draw-
mean that an Age Pensioner can earn around $518 a fort- downs are themselves tax-free (the standard position for
night (around $13,500 a year) from employment before any super pension income from a taxed source after 60).
of it affects their pension, leaving aside any other income The 1 July 2026 tax rate change is the second instalment
they might have. A working couple of pensioners can earn of the cuts introduced in July 2024. The marginal rate on in-
meaningfully more again, particularly if both partners are come between $18,201 and $45,000 drops from 16 per cent
working. For seasonal earnings, where the work bonus to 15 per cent, worth up to $268 a year for taxpayers earning
accrual is used in fewer fortnights, the effective tax-free above $45,000. The cut applies to all working Australians,
zone is substantially higher. including those over Age Pension age, but stacks usefully
It also matters that the work bonus only applies to with SAPTO for seniors whose rebate income falls within the
employment income — wages, salary, or income from gainful lower marginal band. For a senior who, after SAPTO, falls
self-employment involving personal exertion. Income precisely into the 15 per cent band on a modest portion of
from investments, rental property, or super pensions is not employment income, the rate change is worth a small but
eligible. For self-employed pensioners, the share of business meaningful amount. (A further cut to 14 per cent is legislat-
income attributable to personal exertion is recorded with ed from 1 July 2027.)
Centrelink as a percentage of business profits; the figure One technical point matters for retirees drawing super
needs to be set correctly when the claim is made, because pensions. For most retirees aged 60 or over receiving a stan-
misclassified records can mean the work bonus isn’t applied dard taxed super income stream, the pension payments are
at all, sometimes for years. tax-free and generally do not count toward taxable income
or SAPTO rebate income. Rebate income for SAPTO purposes
Tax: SAPTO, the rate cut, and the interaction is taxable income plus reportable employer super contribu-
with super income tions, deductible personal super contributions, net invest-
The tax position for working pensioners and self-funded ment loss, and adjusted fringe benefits — none of which
retirees over Age Pension age has two distinctive features: is the same thing as ordinary pension drawdowns from a
the Seniors and Pensioners Tax Offset (SAPTO), and the taxed super source. Exceptions can apply: certain untaxed
income tax rate change taking effect on 1 July 2026. super pensions (most commonly from older public-sector
SAPTO is a non-refundable tax offset specifically for schemes) do flow into taxable income and can therefore
Australians of Age Pension age who either receive a qual- affect SAPTO. If you are unsure which type of pension you
ifying government payment or would qualify for the Age receive, the fund’s annual statement will identify it.
Pension but for the means tests. It is one of the more useful
and least understood tax provisions affecting retirees. For Super: what changed in 2022, and what didn’t
2024–25 (the most recent year for which final thresholds Super contribution rules for people aged 67 to 74
are confirmed), the maximum offset is $2,230 for an eligible changed materially on 1 July 2022. Before that date, anyone

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