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11.6.6 Pensioner Offsets

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What is a pensioner offset?

Under Income Tax legislation, the Australian Tax Office provides a special offset of tax, called a pensioner offset, for taxpayers in receipt of taxable service pension, income support supplement or social security age pension.

Different levels of pensioner offset

Separate levels of pensioner offset apply to:

The levels of offsets are designed to ensure that pensioners with income (apart from pension) below the income free area, are not liable for tax.

How the pensioner offset works

A pensioner offset works by reducing the amount of tax that would otherwise be payable on an assessment of taxable income.

Pensioner offsets are subtracted from a person's tax liability, once it has been calculated. They only apply to a pension which is taxable, and cannot be refunded to the pensioner if the amount of allowable offset is in excess of the amount of tax payable.    

Shading out of pensioner offset

Pensioner offsets 'shade out' at the rate of 12.5 cents for each dollar of taxable income in excess of the relevant thresholds. Shading out continues until there is no remaining offset left to offset against the amount of tax payable.

Members of a couple may transfer the pensioner offset

Members of a couple (including illness separated or respite care couples) may transfer any unused portion of the offset and shade out threshold to their partner unless the partner is receiving:

  • job search allowance,
  • newstart allowance,
  • sickness benefits, or
  • special benefits.

The transfer is effected on the last day of the year of income (normally 30 June, unless another period has been agreed to by the Commissioner of Taxation).

Additional information is available from the Australian Tax Office

If additional information is required about pensioner offsets, the pensioner should contact the Australian Tax Office.


A service pension is an income support payment broadly equivalent to the social security age and disability support pensions. It may be paid once a veteran or partner has reached the nominated age or is incapacitated for work.

ISS is an income support payment that may be paid to eligible war widows and widowers under the VEA and persons receiving wholly dependent partners' compensation under the MRCA, and who satisfy the means tests. It is an indexed rate, increased twice-yearly in March and September in line with changes to the cost of living and/or average wages. Income Support Supplement (ISS) legislation commenced on 20 March 1995. It is a payment created to replace the ceiling rate income support age, carer, wife and disability support pensions, paid to war widows/widowers by Centrelink.

 

 

According to Section 5E(2) of the VEA a person is a member of a couple, if they are:

  • legally married to another person and is not living separately and apart from the other person on a permanent basis; or
  • living in a prescribed registered relationship with the other person (whether of the same sex or a different sex) and is not living separately and apart from that other person on a permanent basis; or
  • all of the following conditions are met:
  • living with another person, whether of the same sex or a different sex;
  • not legally married to that person;
  • in a de facto relationship with that person; and
  • not in a prohibited relationship

The term “partnered” is also commonly used.

An illness separated couple is a couple who cannot share a home because of the illness or infirmity of one or both partners. Illness separated couples may be paid the higher single rate of pension. Refer to subsection 5R(5) of the VEA for the full definition.

 

 

A respite care couple is a couple who Commission has determined are separated because one person has entered respite care in a nursing home or hostel to give the other member of the couple a temporary break from caring for that person.

Members of a respite care couple are entitled to be paid the single rate of pension.

Refer to subsection 5R(6) of the VEA for the full definition.

 

 

The income free area is the amount of income that an income support pensioner may receive without suffering any reduction in pension under the income test.