If you’re heading into retirement or already there, one of the first questions you’ll ask is: how much can I earn in retirement without paying tax in Australia? The answer is more generous than most people expect, thanks to a combination of offsets and super rules that work in your favour.
Quick answer: tax-free income limits for retirees in 2026
The standard tax free threshold in Australia is $18,200 per year. But if you’ve reached Age Pension age, you can earn significantly more before you pay tax, because two additional offsets kick in: the Seniors and Pensioners Tax Offset (SAPTO) and the Low Income Tax Offset (LITO).
Here are the indicative figures for the 2025-26 financial year:
Status | Effective tax-free taxable income |
|---|---|
Eligible single senior | Approximately $35,812 per year |
Each member of an eligible couple | Approximately $31,888 per year |
These are effective thresholds for income tax only. The medicare levy, and other rules, are covered later in this article.
Your personal answer always depends on:
Your age, especially whether you’ve reached age 60 and age pension age
Whether you qualify for SAPTO
How much of your income comes from superannuation income streams versus other sources like investment income or employment income
Keep in mind that rules and thresholds can change each 1 July. This is a 2026-focused guide, and you should always check current ATO figures before acting. If you’d rather have the numbers modelled against your own position, our retirement planning service in Adelaide does exactly that.
Do retirees in Australia have to pay income tax at all?
Retirees in australia are taxed under the same income tax laws as everyone else. There is no special “retired” status that makes you exempt. What matters is your total assessable income, your age, and the offsets you’re eligible for.
You may have to pay tax if:
Your taxable income exceeds your effective tax free threshold
You receive taxable income from work, business, investment earnings, or certain superannuation income streams before age 60
However, many retirees legitimately pay no income tax because:
Super pension income from a taxed superannuation fund after age 60 is usually tax free
SAPTO and LITO can fully offset the tax that would otherwise be payable on modest taxable income
Some investment income may be fully offset by franking credits
It’s worth understanding the difference between assessable income (everything you must declare to the ATO) and tax payable (what you actually owe after thresholds, offsets, and credits are applied). These are very different numbers.
Our guide to how to minimise tax in retirement in Australia covers the broader strategies these offsets sit inside.
The tax free threshold, SAPTO and LITO explained
This section unpacks the building blocks that determine how much a retiree can earn before paying income tax. Getting your head around these three mechanisms is the key to understanding the numbers above.
The standard tax free threshold of $18,200 applies to all Australian resident taxpayers. Earn below this amount and you owe zero income tax, regardless of age.
The Seniors and Pensioners Tax Offset (SAPTO) is a non-refundable tax offset for eligible older Australians. To qualify, you must be of Age Pension age and meet residency and income conditions. Critically, you do not need to receive the Age Pension to qualify for SAPTO. SAPTO reduces the actual tax payable dollar for dollar, which is what pushes the effective tax free threshold for singles up to $35,812.
The maximum SAPTO tax offset is $2,230 for singles and $1,602 for each member of an eligible couple.
The Low Income Tax Offset (LITO) provides up to $700 for taxable incomes under $37,500 and is automatically applied by the ATO when your tax return is assessed.
When you combine the tax free threshold, LITO, and SAPTO, an eligible single senior can earn approximately $35,812 tax free annually. Each member of an eligible couple can earn $31,888 tax free.
One important detail: SAPTO is calculated on your “rebate income,” which includes taxable income plus adjustments like net investment losses and reportable super contributions. This is different from your standard taxable income figure.
How different retirement income streams are taxed
In retirement, most people draw income from several sources. Each is taxed differently, and understanding the distinctions matters for planning.
The main retirement income types include:
Age pension and other government payments
Account based pension and other superannuation income streams
Defined benefit pensions
Investment income such as bank interest, term deposits, rental income, managed fund distributions, and franked dividends
Casual employment or self-employment income
Retirement income streams explained: ABP vs annuity vs other options sets out how each option works before you get to the tax treatment.
“Tax free” in retirement typically comes from two places: income streams that are non-assessable (like super pension income after age 60 from a taxed fund), and income that is assessable but fully offset by SAPTO, LITO, and franking credits.
The ATO assesses your total taxable income across all sources each financial year. It does not look at each income stream in isolation when applying tax scales and offsets.
This is why coordinating the timing and size of each income stream matters. Choosing when to start an account based pension, when to sell an investment, or how much to draw from your super can make the difference between paying tax and paying nothing.
Superannuation after age 60: account based pensions, lump sums and defined benefit income
Superannuation is usually the most tax effective way to draw retirement income, especially from age 60. Here’s how the main components work.
Account based pensions: Once you meet a condition of release and access your super to start an account based pension from a taxed superannuation fund, two things happen. Investment earnings (including capital gains) on the supporting assets inside the fund become tax free. And account-based pension payments to you are tax free after age 60. This is the single biggest driver of tax free retirement income for most Australians.
Account-based pensions and practical retirement advice covers the mechanics and minimum drawdown rules, and what happens to your super when you retire explains the shift from accumulation to pension phase.
Lump sum withdrawals: From a taxed super fund, lump sum payments are generally free from age 60. Withdrawals before 60 or from untaxed elements can be partially taxable and different rules apply.
Defined benefit pensions and untaxed funds: Some older public sector schemes have “untaxed elements.” Income from these pension arrangements can still be taxable even after age 60. Defined benefit pensions are tax free up to a cap of $131,250 per annum. Amounts above this cap become assessable, though a 10% tax offset may apply.
Our guide to defined benefit pensions: income for life vs lump sum covers these schemes in detail.
Capital gains tax inside super: There is no capital gains tax on investment earnings supporting a retirement phase income stream, up to the transfer balance cap. In the accumulation phase, superannuation earnings are taxed at up to 15%, with capital gains often reduced to 10% after the CGT discount.
The transfer balance cap increase to $2.1 million on 1 July 2026 covers what changed this financial year and how much you can now move into the tax-free environment.
The planning point is clear: moving enough of your balance into an account based pension once eligible is a key step in maximising tax free income in retirement.
Age Pension, bank interest and other investment income
The age pension is assessable income for tax purposes. Centrelink does not withhold PAYG tax by default. In practice, many full and part pensioners pay no income tax because SAPTO and LITO offset the amount that would otherwise be payable.
How the Age Pension income and assets test works explains how much you’d receive in the first place.
Interest, dividends, and rental income are taxable for retirees, just as they are for working-age taxpayers. The main categories:
Bank interest and term deposits are fully assessable
Rental income from investment properties is assessable after deductions
Managed fund distributions and franked dividends are assessable at your marginal tax rate
Franking credits can significantly reduce retirees’ taxable income. Franked dividends come with credits representing company tax already paid. If your tax on that income is less than the credits, those credits can reduce your overall tax payable to zero and may even generate a refund.
Capital gains on assets held outside super are taxed at marginal rates, with a 50% CGT discount for assets held more than 12 months. Careful timing of sales in lower-income years can help you stay under your effective tax free threshold.
Note that Centrelink uses deeming rules on financial assets to work out your age pension entitlement. This is separate from how the ATO taxes actual investment earnings. Centrelink deeming rates explained covers why the ATO and Centrelink can see the same dollar very differently.
How much can a self funded retiree earn before paying tax?
A self funded retiree relies mainly on superannuation and investments rather than the age pension. The tax rules are the same, but the income mix is typically different.
There is no legal cap on how much a self funded retiree can earn. The question is at what point income tax becomes payable. Self funded retirees can earn up to $35,812 before tax on their taxable income when eligible for SAPTO and LITO. Eligible single seniors can earn $35,812 tax free annually.
A typical structure for a self funded retiree over age 60 looks like this:
A large component of tax free income from an account based pension
Some taxable income from investments outside super (interest, rent, dividends).
Possibly casual employment income. Tax-aware investing: which assets to hold in each structure covers how to decide what sits inside super and what sits outside it.
Worked example: A retired single, age 66, eligible for SAPTO, receives $40,000 per year from a super account based pension (tax free). She also earns $20,000 in franked dividends and $10,000 in bank interest. Her taxable income is $30,000. After applying the tax free threshold, the marginal tax rate on income between $18,201 and $30,000 produces a modest amount of tax. But LITO and the pensioners tax offset sapto together wipe that amount out. Franking credits reduce it further. Result: zero tax payable.
Once taxable income goes beyond the SAPTO and LITO ranges, normal marginal rates and the medicare levy will begin to apply.
Strategies to maximise tax free income in retirement
With thoughtful planning, many Australians can structure their retirement income so they pay little or no tax for years. Here are the most tax effective approaches:
Move eligible super into an account based pension to make investment earnings and pension payments tax free after age 60, subject to the transfer balance cap
Manage how much taxable income you draw each year from investments outside super to stay under your effective threshold
Make concessional contributions before retirement to build super in the 15% super tax environment instead of at higher marginal rates. Superannuation changes from 1 July 2026 sets out the current caps, and if you’re still working, the transition to retirement strategy is a way to build super tax-effectively before you stop.
Consider using non-concessional contributions, within caps, to move personal investments into a superannuation fund where future earnings may be taxed at 15% or 0% in pension phase
For capital gains tax, sell assets gradually over multiple financial years to smooth gains and keep taxable income under SAPTO thresholds. Consider timing large disposals in a year when other taxable income is low.
Those with defined benefit pensions or untaxed elements need specialised planning because some income will stay taxable even after 60.
Review your position each June. Income streams, offsets, and contribution caps change over time, and an annual check ensures you stay within the bands where you reduce tax to zero. Our checklist for the five years before retirement covers what else to review in that window.
Where professional advice adds value (and how Money Path can help)
The rules around sapto, income streams, capital gains, death benefit taxation, and contribution caps are complex. Mistakes can be costly or irreversible.
A licensed financial planner such as Money Path can:
Map out your expected income streams after age 60 and Age Pension age
Model “how much can I earn without paying tax?” under different scenarios
Structure superannuation so most of your retirement income is tax free
Provide ongoing review as tax rules, super caps, and your circumstances change
You may be able to significantly reduce tax in retirement with the right advice, particularly around balancing an account based pension with investment income and age pension entitlements. This article is general information, not personal tax advice. Always seek tailored financial advice for your situation.
Frequently asked questions: tax free income in retirement
How much can I earn in retirement before I have to lodge a tax return? The need to lodge is linked to your taxable income and other triggers. Many seniors with only age pension and small investment income may use a non-lodgment notice instead.
Is all pension income from my account based pension tax free after age 60? Yes, for most taxed super funds. Exceptions may apply for untaxed elements and some defined benefit pensions where different rules apply.
Do I pay capital gains tax when I sell investments in retirement? Capital gains tax still applies to assets held outside super. Gains realised inside a retirement phase super income stream are generally exempt up to the transfer balance cap.
Can I keep doing paid work after 67 and still pay no tax? Many retirees can, as long as total taxable income stays under their effective tax free threshold. Work Bonus rules are a Centrelink concept for age pension and are separate from ATO income tax rules — should you keep working in retirement covers both sides.
Does low income always mean I pay no medicare levy? No. The medicare levy has its own thresholds for seniors and pensioners. Some retirees pay no income tax but still pay a small medicare levy if above those specific thresholds.
What’s the safest way to check how much I can earn tax free in my situation? Use the ATO’s online calculators for SAPTO and thresholds, and consider seeking tailored advice from a financial planner such as Money Path for complex situations.
