Chapter 9 - What about taxation?

• Is your pension taxable and subject to income tax?
• Medicare levy reduction or exemption
• Taxation deductions
• Tax file numbers

This chapter is about:

• pensions subject to income tax
• lodging an income tax return
• Medicare levy
• payment summary (formerly known as group certificate)
• taxation deduction (instalments)

Is your pension taxable and subject to income tax?

Certain Australian Government pensions are taxable and subject to income tax. If you receive one of these pensions the amounts you receive are assessable income for taxation purposes. If you have other assessable income, this income and the amount of your taxable pension may exceed the thresholds set by the Australian Taxation Office (ATO) for senior Australians (refer to Do you need to lodge a tax return? later in this chapter). If your Australian Government pension is your only income you will not have to pay any income tax.

Most pensioners are not required to pay income tax.

Use the following guides to work out if your payment is subject to income tax

Taxable payments subject to income tax

• Age service pension (in 2010/2011 this was age 60 for males, and age 59 years for females. Age for females will change in 2011/2012)
• Invalidity service pension where the person has reached age pension age
• Social security age pension (paid by DVA)
• Partner service pension at age pension age or partner service pension under pension age for couples who are separated for reasons other than illness
• Age income support supplement (in 2010/2011 this was age 60 for males, and age 59 years for females. Age for females will change in 2011/2012)
• Income support supplement where the person is under age pension age and they are not included in the below list of non taxable payments exempt from income tax
• Education allowance for people over 16 years
• Defence Force Income Support Allowance (DFISA) paid in respect of a social security income support payment that is taxable (for example, if you are receiving DFISA in respect of the age pension)
• DFISA paid in respect of an income support payment which is not a social security income support payment where the payment is taxable (for example, if you are receiving DFISA in respect of the exceptional circumstances relief payment)

Non-taxable payments exempt from income tax

• Disability pension and allowances
• War widows' and orphans' pensions
• Invalidity service pension if the person has not reached age pension age
• Partner service pension where the person and their partner are under age pension age and the partner is an invalidity service pensioner 
• Income support supplement paid on the grounds of invalidity if the person has not reached age pension age
• Income support supplement where the person and their partner are under age pension age and the partner is an invalidity service pensioner or disability support pensioner
• Remote area allowance
• Rent assistance  
• Bereavement payment
• Defence Force Income Support Allowance (DFISA) paid in respect of a social security income support payment that is non-taxable (for example, if you are under pension age and receiving DFISA in respect of the disability support pension)

Note: If the veteran’s income support payment becomes income for tax purposes so is the partner’s regardless of the partner’s age. Age pension age for 2010/2011 financial year was 65 years for males and 64 years for females. Pension age for females will change in 2011/2012 due to age equalisation rules. For more information on pension age refer to Chapter 3 Which pension do you get? or contact your nearest DVA office.

Pay As You Go (PAYG) Payment Summary (formerly known as group certificate)

The information previously reported on a Group Certificate is now reported on a PAYG payment summary - individual non business. If you receive a payment that is subject to income tax, we will send you a payment summary at the end of each financial year. The payment summary shows the amount of pension subject to income tax you have received in that financial year. If applicable the payment summary will also:

• include the total amount of any tax instalments you have asked to be deducted (refer to Taxation Deduction (Instalments) later in this chapter).
• refer to Medicare Levy Exemption (see Medicare levy reduction or exemption later in this chapter).

If you only receive a payment from DVA that is not subject to income tax, you will not receive a DVA payment summary.

Note: If you are lodging a final income tax return for a deceased estate you will need to contact your nearest DVA office for a payment summary.

Do you need to lodge an income tax return?

You need to lodge an income tax return if the amount shown on your payment summary plus your other income is higher than the thresholds set by the Australian Taxation Office (ATO). In the 2010/2011 financial year, the thresholds set by the ATO for senior Australians (that is, those persons who are age pension age under the Social Security Act 1991 or Veterans’ Entitlements Act 1986) are as follows:

• Single $30,685
• Married / partnered $26,680 each
• Illness separated couple $29,600 each

There are a number of circumstances where the threshold amounts may vary. If you receive 27 payments of pension in a financial year the threshold amounts are adjusted accordingly.

You will also have to lodge an income tax return if you have tax deducted from your pension, you have income from overseas that is not a pension or if you have income from a trust or you are involved in or receive income from a business.

If you are in any doubt contact the Australian Taxation Office (ATO).

Medicare levy reduction or exemption

If you are a low income earner, the ATO may reduce your levy. They will work out the amount of any levy you need to pay after you lodge your income tax return. You may qualify for a Medicare levy exemption if you receive a pension because you are blind or if you are entitled to a Gold Card. If you are exempt from paying the levy for either all or part of the financial year, we will send you an exemption certificate. If you are required to lodge an income tax return you will need to record the number of days stated on your Medicare exemption certificate at the relevant question on your income tax return. You do not need to attach your Medicare exemption certificate to your income tax return, however, you should retain the certificate for your records.

See factsheet: PAT12 Medicare Levy and Medicare Levy Surcharge

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Taxation Deductions (Instalments)

If any part of your pension is subject to income tax you can arrange for deductions from your income support pension in order to make payments to the ATO to assist you in meeting your tax liability. Simply write and tell us how much you want deducted each fortnight. You may first need to talk to the ATO to find out what your tax liability will be.

If you have amounts deducted, you will need to lodge a tax return each year. The amounts you have paid may exceed your tax liability and you will need to lodge a tax return to claim your refund.

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Tax File Numbers

To help ensure that pensions are only paid to eligible persons we compare our records with those of other government agencies. Your tax file number is used for this purpose.

All matching programs are monitored by the Privacy Commissioner who ensures that they are conducted in accordance with the Data-matching Program (Assistance and Tax) Act 1990 and Guidelines.

Access to your tax file number is restricted. If you lose or forget your number you will need to contact the Australian Taxation Office.

For more information about tax and your pension contact your nearest ATO or DVA office.

See Factsheet: PAT11 Taxation and your pension (PDF 98kB)

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