The best time to retire for tax purposes in Australia is largely determined by superannuation rules.
In saying that, the level of retirement income you need will also be a consideration.
This article will assume that you have adequate funds to retire and are simply seeking the best time to retire for tax purposes.
Retiring in Australia has many definitions, both legally and practically.
Each person has a different interpretation of the word retirement.
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So, taking all of this into account, when in the best time to retire for tax purposes in Australia?
Best Time To Retire for Tax Purposes in Australia
The tax-free threshold in the current financial year in Australia is $18,200.
This means an individual can receive income of up to $18,200 per year without paying any tax.
If you are a member of a couple, you can receive income $36,400 per year, combined, without paying tax.
Therefore, if you were retired, you can receive assessable income (e.g. interest, dividends, rent) of $18,200 per person, at any age.
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So, assuming you could cover your expenses with $18,200 per person, per year, then any time and any age is the best time to retire for tax purposes in Australia.
It gets better for seniors and pensioners.
If you are eligible for the Senior Australian Pension Tax Offset (SAPTO), you can receive income of up to $33,000 per person, per year, without paying tax.
If you think you might be eligible for the SAPTO, use this calculator to figure out your offset amount.
Best Time in Financial Year to Retire
The best time in the financial year to retire is usually halfway through the financial year, at the end of December.
The reason for this is because a financial year for tax purposes is from 1 July to 30 June.
The income amount that you are taxed on is based on the income you receive over the course of the full financial year.
Retiring halfway through the financial year theoretically allows you to earn the most amount of income for the least amount of tax, compared to a full year’s earnings.
For example, if you have an income of $70,000 in the current financial year, you would pay income tax of around $15,000 by working from 1 July to 30 June.
If, instead, you were to retire at the end of December, earning $35,000 between 1 July and 31 December, you would only pay around $700 in tax.
The examples above assume you have no other taxable income.
That’s why the December month is the best time in the financial year to retire.
December is also the most common month to retire in Australia, due to it being the Christmas and summer period in Australia.
It is common for the workforce to take longer breaks during this month and therefore seen as a one of the best and most common months to retire, also.
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Best Age To Retire for Tax Purposes Super
The ultimate best time to retire for tax purposes in Australia when it comes to superannuation is age 60.
The only exception is if your balance includes a taxable (untaxed) element.
You can contact your superannuation provider to see if your balance includes a taxable (untaxed) component.
The table below details how each of these elements are taxed for people aged 60 or over.
|Tax Element||Type of Withdrawal||Tax Rate (incl. Medicare levy)|
|Taxable (taxed)||Lump Sum||0%|
|Taxable (taxed)||Income Stream||0%|
|Taxable (untaxed)||Lump Sum||Marginal Tax Rate less 10% tax offset|
|Taxable (untaxed)||Income Stream||Lower of Marginal Tax Rate and 17% (up to untaxed cap plan)|
All withdrawals made from superannuation must be made proportionately from each tax component.
If you are over age 60 and your super balance does not include a taxable (untaxed) element, you can receive as much super income as you like without paying tax.
This is what makes age 60 the best time to retire for tax purposes in Australia.
The amount of super that you can withdraw tax-free while under age 60 is based on your age and the tax elements that make up your balance.
Regardless of age, the tax-free element is always received tax free.
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To see how the taxable element is taxed while under age 60, click here.
The age that you can access your superannuation will help determine the best age to retire in Australia.
The calculator below shows your superannuation preservation age, which is the earliest age that you can access your super.
Depending on your employment status, your access to super may be limited, even if you have reached your preservation age.
Best Time to Retire for Tax Purposes Conclusion
The best time to retire for tax purposes in Australia is generally age 60.
However, as there are so many variables, the best time to retire for each individual for tax purposes will differ.
The table below details some of the factors that can allow you to receive a higher income without paying tax:
|Share Dividend Franking Credits||Tax already paid on the some or all of the dividend by them company meaning you receive a tax credit for the tax already paid|
|SAPTO||A tax offset for seniors and pensioners to reduce tax that would otherwise be payable|
|Super Pension Income Offset||A tax offset equal to 15% of the taxable (taxed) element while under age 55|
|Low Rate Cap Amount||Allows lump sum super withdrawals to be tax free on the taxable (taxed) element while under age 55 – up to the indexed lifetime cap amount|
Hopefully this has helped you determine the best time to retire for tax purposes in Australia.