Yes, self-funded retirees do pay tax in Australia, but many end up owing nothing. If you are 60 or older and drawing from a standard taxed super fund, those pension payments and lump sums are tax-free. Income from investments outside super, such as interest, rent, unfranked dividends, and capital gains, is taxed at ordinary marginal rates. Between the $18,200 tax-free threshold, the Seniors and Pensioners Tax Offset (SAPTO), and the Low Income Tax Offset (LITO), a single retiree can earn roughly $35,813 before any income tax or Medicare Levy applies.
Why Most Super Income Is Tax-Free
The single biggest reason self-funded retirees often pay no tax is the treatment of superannuation itself. Once you are 60 or older and drawing money from a taxed super fund, both lump sum withdrawals and regular pension payments are completely tax-free.1Australian Taxation Office. Tax on Super Benefits That covers the vast majority of private-sector and industry super funds.
There are two narrower situations where super income is taxed. If you draw from an untaxed fund (mainly certain public-sector schemes), the untaxed component is taxed at your marginal rate with a 10% offset. If you are under 60, marginal-rate treatment applies with a 15% offset available on the taxed element of the income stream.2Australian Taxation Office. Superannuation-Related Tax Offsets
One future change is worth flagging. From 1 July 2026, proposed legislation would apply additional tax on earnings within super for members with total balances above $3 million. Under the Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026, earnings on the portion between $3 million and $10 million would be taxed at an extra 15% (effective rate 30%), and earnings above $10 million at an extra 25% (effective rate 40%). The bill uses a realised-earnings base rather than taxing unrealised gains.3Parliament of Australia. Treasury Laws Amendment (Building a Stronger and Fairer Super System) Bill 2026 If your balance is near or above $3 million, watch this one through Parliament.
How Much Can You Earn Before You Owe Tax?
Every Australian resident gets the first $18,200 tax-free.4Australian Taxation Office. Tax Rates – Australian Resident Two offsets push that effective threshold much higher for retirees.
SAPTO is available once you reach Age Pension age (currently 67), and you do not need to actually receive the Age Pension to claim it.5Australian Taxation Office. T1 Seniors and Pensioners Tax Offset 2025 The maximum offset for a single person is $2,230, phasing out completely at a rebate income of $52,759.6Australian Taxation Office. Seniors and Pensioners Tax Offset For couples living together, each partner can receive up to $1,602; couples separated by illness can each receive up to $2,040. If one partner does not use their full SAPTO, the unused portion can transfer to the other spouse, a feature many couples miss.
LITO is not age-restricted but rewards modest incomes. The maximum is $700 for taxable incomes up to $37,500, phasing down between $37,501 and $45,000, then reducing to zero at $66,667.7Australian Taxation Office. Low Income Tax Offset
Combined, a single retiree who qualifies for both offsets can earn approximately $35,813 before any income tax or Medicare Levy applies. For each member of a couple living together, the equivalent threshold is about $31,888. These are the practical planning numbers.
Watch the definition of rebate income used to test SAPTO eligibility. It is not the same as taxable income. It includes taxable income plus items like reportable fringe benefits, exempt foreign employment income, and tax-free government pensions. Getting this wrong is a common cause of ATO reassessment notices.
What Still Gets Taxed Outside Super
Income from investments held outside superannuation is added to your taxable income and taxed at ordinary marginal rates. There is no retiree-specific exemption for any of the following.
- Interest: Bank interest from savings accounts and term deposits is fully taxable.
- Dividends: Dividends from Australian shares are included in taxable income; franked dividends carry imputation credits that reduce or eliminate the tax owed.
- Rental income: Net rental income from investment properties is taxable, after deductions for management fees, maintenance, insurance, and depreciation.
- Capital gains: Selling shares, investment property, or other assets triggers CGT. Assets held at least 12 months qualify for a 50% CGT discount, so only half the gain is added to taxable income.8Australian Taxation Office. CGT Discount
The 2025–26 resident rates are: nothing on the first $18,200; 16 cents per dollar to $45,000; 30 cents per dollar to $135,000; 37 cents per dollar to $190,000; and 45 cents per dollar above that.4Australian Taxation Office. Tax Rates – Australian Resident SAPTO and LITO reduce whatever tax those rates produce.
Medicare Levy and the Surcharge
The Medicare Levy of 2% applies on top of income tax.4Australian Taxation Office. Tax Rates – Australian Resident Retirees eligible for SAPTO get a higher low-income threshold. For 2024–25, seniors with taxable income at or below $43,020 paid no Medicare Levy, with a reduced levy up to $53,775.9Australian Taxation Office. Medicare Levy Reduction for Low-Income Earners The 2025–26 figures are indexed and may be slightly higher.
The Medicare Levy Surcharge is separate. It applies if you earn above certain thresholds and do not hold private hospital cover. For 2025–26, singles earning over $101,000 and families earning over $202,000 face a surcharge of 1% to 1.5% depending on income.10Australian Taxation Office. Medicare Levy Surcharge Income, Thresholds and Rates For a self-funded retiree with substantial investment income, the surcharge alone can cost several thousand dollars a year, and private hospital cover is often the cheaper choice.
Franking Credit Refunds
Franking credits are the reason many self-funded retirees actually receive a refund each year despite paying no tax up front. When an Australian company pays corporate tax on its profits and then pays dividends, the tax already paid is passed to shareholders as franking credits. You include the grossed-up dividend (cash plus franking credit) in your return, and the franking credit counts as tax already paid on your behalf.11Parliamentary Budget Office. Dividend Imputation and Franking Credits
If your total tax liability is already zero after the tax-free threshold, SAPTO, and LITO, the ATO refunds excess franking credits in cash.12Australian Taxation Office. Refund of Franking Credits for Individuals A retiree with $30,000 in fully franked dividends from large companies taxed at the 30% corporate rate would carry roughly $12,857 in franking credits. Once offsets zero out the income tax on that income, a significant portion of those credits comes back as a deposit from the ATO.
The one condition: you must lodge a tax return. The ATO will not issue the refund without one.
Do You Need to Lodge a Tax Return?
The ATO generally requires you to lodge if your total income exceeds $18,200, or if you want to claim a refund of franking credits.13Australian Taxation Office. Do I Need to Lodge a Tax Return If your only income is tax-free super pension payments and you have no franking credits to claim, you may not need to lodge at all. The ATO’s online tool will check your specific situation.
Commonwealth Seniors Health Card
Even if you fall outside the Age Pension, you may still qualify for the Commonwealth Seniors Health Card, which offers cheaper prescription medicines, bulk-billed GP visits at participating practices, and other concessions. Adjusted taxable income must be below $101,105 for singles or $161,768 for couples.14Services Australia. Income Test for Commonwealth Seniors Health Card Tax-free super income streams drawn from a taxed fund by someone aged 60 or older are not counted in this income test, so many self-funded retirees qualify even with substantial super pensions. The card doesn’t change your tax position, but it can meaningfully cut healthcare costs.