Simplified Superannuation
On 15 March 2007, legislation was enacted which will implement significant reforms to the taxation of Australia’s superannuation system. The Simplified Superannuation reforms will increase retirement incomes, make superannuation simpler and easier to understand for retirees, improve incentives to work and save, and provide greater flexibility over how superannuation savings can be drawn down in retirement. A key reform is the removal of tax on superannuation benefits for Australians aged 60 and over who have already paid tax on their superannuation contributions and earnings. Most of the changes will take effect from 1 July 2007. The full details of the Government’s superannuation reforms are available on the Australian Taxation Office website.
Tax offsets and incentives
The Age Pension is a taxable payment. However, as a result of the Senior Australians Tax Offset (SATO), you don’t have to pay income tax if you receive only the Age Pension. The SATO is available to anyone who meets certain conditions covering age, eligibility for Commonwealth pensions or similar payments, not in prison and income. The source of a person’s taxable income does not affect eligibility for the SATO.
The SATO ensures that age pensioners pay no tax if their taxable income (including all pension and non-pension income) is less than the income test free threshold for the Age Pension. There are also Medicare levy thresholds for people eligible for the SATO to ensure they do not have to pay the levy until they incur a tax liability.
Any unused part of the SATO can be transferred between members of a couple if both parties are eligible to claim the SATO (or the pensioner tax offset). The calculation of this transfer will normally be done by the ATO from information provided in the tax returns. The SATO can only reduce a taxpayer’s tax liability and cannot be used to offset their Medicare levy or be refunded to them if not fully used.
In some cases people eligible for the SATO will no longer have to lodge a tax return. For more information about the conditions for eligibility refer to the fact sheets on the ATO website www.ato.gov.au or call their Personal Tax Infoline on 13 28 61.
In calculating your income, the tax office is interested in what you actually earned for the year. Social security or Veterans’ Affairs deeming rules are not relevant for taxation purposes.
Mature age worker tax offset
The mature age worker tax offset is an extra incentive for people to stay in work beyond the age of 55. The offset is available to people aged 55 and over, and provides a maximum annual rebate of $500 based on their income from working. The offset is payable on assessment. For further information phone the ATO on 13 28 61, or visit www.ato.gov.au
Low income tax offset
A tax offset is available for taxpayers whose taxable income is below a certain amount. From 1 July 2007, the full offset is available to individuals with taxable income below $30 000, while a reduced offset is available on taxable incomes up to $48 750. Further information on the offset can be obtained by calling the ATO on 13 28 61.
Superannuation low-income spouse tax offset
Seniors can claim an 18 per cent tax offset for contributions made to a complying superannuation fund or retirement savings account for a non-working or low-income earning spouse. Where a spouse is aged 65 or over, there are contribution work tests, which may prohibit the ability to make contributions on their behalf. The maximum tax offset is available for contributions of up to $3 000, where the spouse’s income does not exceed $10 800. A reduced offset is available where the spouse’s income is above $10 800, but less than $13 800.
Tax deductions for contributions to superannuation for self-employed persons
Under the Government’s Simplified Superannuation reforms, with effect from 1 July 2007 eligible self-employed persons will be able to claim a full deduction for all contributions to superannuation until age 75.
The Medicare levy
Most Australian residents pay the Medicare levy. Some Veterans’ Affairs pensioners and people on the blind pension or Sickness Allowance may be exempt. There is also relief for low income earners and people who receive the pensioner tax offset or SATO.
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Capital Gains Tax (CGT) discount
Under the capital gains tax arrangements, only 50 per cent of nominal gains are taxed where the assets are held for at least one year.
CGT may be payable when shares or property bought or received after 19 September 1985 are sold. The calculation of the CGT liability is complex and detailed records should be maintained.
Publications explaining how to work out your capital gains and capital losses are available from the Australian Taxation Office (ATO). You can get these by phoning 1300 720 092 or by downloading them from www.ato.gov.au
Capital gains and losses can also occur with fixed interest and managed investment products even if you do not sell your investments because the fund manager may have traded assets and the gains must be distributed.
With Property Trusts Tax deferred income may also be provided, as advised in distribution statements. This may reduce the cost base for capital gains tax.
Pay As You Go (PAYG) instalments
Pensioners who qualify for a full or part SATO are exempt from the PAYG instalment system. PAYG instalments seek to ensure that tax is collected on investment or business income earned during the previous quarter. When a person has a notional tax amount notified by the Taxation Commissioner of less than $8 000 they can choose to pay one annual PAYG instalment. PAYG instalments are not an extra tax.
Doing your tax
There are many ways you can lodge your tax return with the Tax Office depending on how simple or complicated your tax affairs are. The Retirees TaxPack contains a shorter tax return form and has been designed specifically for retirees with relatively straightforward tax affairs. Information about your eligibility to complete this tax return form is contained in the Retirees TaxPack.
You may also be able to lodge your tax return electronically via e-tax or over the telephone by calling the lodgement service on 13 28 65.
In the 2007–08 Budget, the Government announced that the Australian Taxation Office (ATO) will pre-fill electronic individual income tax returns for the 2007–08 and following income years. The pre-filling of tax returns will make completing income tax returns easier for around nine million individual taxpayers who use e-tax or lodge their returns through tax agents.
The ATO will automatically include the following information in returns:
- alary, wages and allowances, where the employer has electronically lodged the employee’s payment summary with the ATO
- dividend and interest income and distributions from managed funds
- payments from Centrelink, the Department of Education, Science and Training and the Department of Veterans’ Affairs
- Medicare out-of-pocket expenses and private health insurance information and w Higher Education Contribution Scheme
and
- Higher Education Loan Programme details.
In addition, for taxpayers who made a small total deduction claim in the previous year, the ATO will enter the deduction amounts from the previous year.
If taxpayers are satisfied that the pre-filled information is correct and they do not need to make changes or provide additional information, they can lodge their pre-filled return. Taxpayers with other sources of income, such as rental income, capital gains or foreign-source income, will need to add this information to their pre-filled return, as will taxpayers whose employer has not lodged their payment summary electronically with the ATO. Similarly, if taxpayers have additional information to provide, or offsets or deductions they wish to claim, these can be added to their return.
Do you need to lodge a tax return?
If your taxable income is below the relevant lodgement threshold, you may not need to lodge a tax return. Information on whether you need to lodge is contained in the ‘Do you have to lodge a tax return?’ section in TaxPack.
If you lodged a return last year, but will not need to lodge a return this year, you need to send in the statement provided in the TaxPack. This explains why you are not lodging a return. You may not have to do this in following years.
Help with your tax return
Tax Help is a group of volunteers who are trained to help people on low incomes prepare their tax returns. This is a free service and available to anyone. For information about Tax Help, tax offsets, or general tax inquiries, phone the Australian Taxation Office on 13 28 61 for the cost of a local call.