11.6.6 Pensioner Offsets

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:

•  members of a couple,
•  members of an illness separated or respite care couple, and
• pensioners who are not a member of a couple.

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:

• JobSeeker payment, 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.