Your Employment Income is Fully Taxable
When you return to work, any new employment income you earn is taxed at standard marginal rates by the Australian Taxation Office (ATO) and added to your total assessable income. This might push your income above the tax-free threshold or into a higher tax bracket. You'll need to provide your employer with a Tax File Number (TFN) declaration.
Tax Considerations for Employed Retirees
- Medicare Levy: The 2% Medicare levy generally applies to taxable income above the threshold.
- Tax Offsets: Eligibility for tax offsets like the Seniors and Pensioners Tax Offset (SAPTO) can be affected by your increased income.
- Tax-Free Thresholds: If you have multiple income sources, carefully consider which one you claim the tax-free threshold from to avoid potential tax debts.
Navigating Superannuation When Returning to Work
Returning to work after accessing super depends on your age and when you first accessed it. If you're over 65, you can access your super without restriction while working. If you accessed super before age 65 based on a genuine intention to retire, returning to work later doesn't affect your prior access.
Contributions and Accumulation Accounts
If you return to paid work, your employer must make Super Guarantee (SG) contributions. These cannot go into a super pension account, so you'll need a new super accumulation account to receive them.
Impact on the Australian Age Pension
For Age Pension recipients, returning to work affects payments due to the Centrelink income test. All employment income must be reported to Services Australia and is assessed with other income. Your Age Pension is reduced by 50 cents for every dollar earned above certain fortnightly thresholds, and consistent earnings above the cut-off can stop payments.
The Work Bonus Scheme
The Work Bonus scheme allows eligible Age Pensioners to earn up to $300 per fortnight from work without impacting their pension. Unused Work Bonus amounts accrue, providing a buffer against the income test.
Comparing Retirement Income Streams
| Feature | Employment Income | Taxed Super Pension (60+) | Untaxed Super Pension (60+) | Centrelink Age Pension |
|---|---|---|---|---|
| Tax Treatment | Taxed at marginal rates | Generally tax-free | Taxable portion with a 15% offset | Included in taxable income |
| Work Bonus | Eligible for Work Bonus concession | Does not affect super pension income | Not directly affected by Work Bonus | Assessed against Work Bonus and income test |
| Impact on Other Income | Can increase overall tax bracket | Generally no impact on other income sources | Can increase taxable income | Can reduce or stop Age Pension entitlement |
| Access Rules | Depends on employment agreement | Subject to minimum drawdown rates | Subject to different rules, often from defined benefit schemes | Means-tested; eligibility requires meeting age and means tests |
Tax Planning Strategies for Working Retirees
- Make Personal Deductible Super Contributions: Claim a tax deduction for personal super contributions, subject to the concessional cap.
- Use the Re-contribution Strategy: Convert taxable super components to tax-free by withdrawing and re-contributing a lump sum as a non-concessional contribution. Seek professional advice before using this strategy.
- Maximise the Work Bonus: If receiving the Age Pension, plan work to maximise earnings without affecting payments, using the accrued Work Bonus.
The Australian Taxation Office and You
For specific tax information, consult the official Australian Taxation Office (ATO) website. A qualified financial adviser specializing in retirement planning can also provide tailored advice.
Conclusion: Making an Informed Return to Work
Returning to work after retirement involves tax complexities. Your employment income is taxed, Age Pension may be affected by the income test (even with the Work Bonus), and new super contributions go into a separate account. Understanding these implications and planning strategically is key to managing your finances effectively.
Disclaimer: This information is for general guidance only and does not constitute financial advice. Always consult a qualified professional for advice tailored to your personal circumstances.
