Congratulations! You’re finally retired. All you need to worry about now is how to spend all that time you suddenly have. No more rushing to meet work deadlines and having to get up early.
Now that you have more free time, learning about your tax obligations as a retiree is a good idea.
What Does Retirement in Australia Mean?
Retirement can have subtly different meanings depending on who you ask. In Australia, it has practical and legal implications. It can mean that you stopped working or are no longer part of a specific industry. It could also be equivalent to having access to superannuation or being qualified for Centre Age Pension Payments.
Do Retirees Pay Taxes in Australia?
For most Australians, an income stream from superannuation or retirement is tax-free as long as you are at least 60 years old. This tax-free method for accruing wealth for retirement is referred to as super.
It’s a popular option among Australians given its low levels of entry tax, discount on capital gains, and concessional contributions tax.
And once you retire from the workforce, you can experience its maximum tax benefits.
Do Retirees Pay Capital Gains Tax in Australia?
Australian retirees don’t pay capital gain tax through super if they use it to kick off their retirement returns. But if you allow your super to accumulate after retirement, capital gains tax will be in effect and must be settled.
This needs further clarification because two separate guidelines determine how tax is calculated for you as a retiree.
The two Australian rubrics that pose plenty of questions are the tax on super withdrawals and on super earnings. For super withdrawals, the guideline depends on your age while super earnings significantly depend on the stage your super is currently in.
What Is the Difference Between the Tax on Super Withdrawals and Super Earnings?
If you’re 60 years old and above, you will receive your pension payouts and round-sum withdrawals from your retirement through your bank account. Considered super withdrawals, these funds are tax-free.
In contrast, super earnings tax is not age dependent. It can happen after you turn 60, 70, or even older because it is based on whether your super is in the accumulation stage or a pension.
What Is a Transition to Retirement?
Some financially able Australians jump directly to full retirement while others ease into it. This latter is when the adjustments in your working hours and the fraction of the salary that’s being set aside go into the Transition to Retirement Income Stream or TRIS. The advantages of this program will make retirement more seamless.
Under Australian rules, you can convert a fraction of your collected super welfare and put it into your TRIS upon reaching the age that allows you access to your super. This is also referred to as the preservation age.
A TRIS gives you more flexibility to change your working schedules as you near retirement. If you are 60 years old and older, your income will be free of tax, but if you are between your preservation age and the age of 59, the different elements impacting your super will be the basis of how your super will be taxed.
Rest assured that a portion of your revenue from a tax-free component will be returned to you free of tax. In contrast, the remaining taxable amount will be included in your regular income and then taxed at your marginal tax rate with a 15% tax compensation deduction.
Compared to a complete retirement income system, your earnings accumulated during the TRIS will be subjected to 15% tax irrespective of when the TRIS began.
When Is It Advisable To Retire in Australia Tax-wise?
Based on taxes, it’s recommended that you retire in Australia once you reach 60 because this is when your right to use your tax-free superannuation kicks in.
Based on financial experts, you can consider retiring once you’ve managed to earn more or less $18,200 in dutiable income. Why? Because these earnings qualify you for the tax-free policy.
You can also look into this question personally by asking yourself when you can have the funds for your retirement while looking into your superannuation income goal, retirement stage, and a thorough assessment of your existing assets and investments.
Regardless of your retirement plans, you can breathe easy knowing that you don’t have to pay capital gains tax on shares in Australia as long as you meet specific parameters.
It is wise to seek the expertise and services of a financial adviser years before you reach the ideal retirement age so you can fully prepare for it and not have to deal with sudden and overwhelming financial decisions when you’re about to retire.