Government Pension Tax in Australia FY 2025-26: Complete Guide

Updated for FY 2025-26 · 6 min read

If you receive a government pension in Australia, understanding how it is taxed is essential for managing your finances in retirement. The rules differ depending on which pension you receive, your total income, and whether you qualify for tax offsets. This guide explains exactly how government pensions are taxed in FY 2025-26, with clear examples and tables.

Which Government Pensions Are Taxable?

The Australian Taxation Office (ATO) treats most Centrelink and DVA (Department of Veterans' Affairs) payments as assessable income. You must include them in your tax return. However, certain payments are tax-free and do not need to be declared.

FY 2025-26 Tax Rates for Pensioners

Pensioners are subject to the same income tax rates as other Australian residents. However, most pensioners do not pay tax because their total income falls below the tax-free threshold, and generous tax offsets apply. The standard tax-free threshold is $18,200 for all residents.

The Senior and Pensioners Tax Offset (SAPTO)

SAPTO is the most important tax offset for Age Pension recipients. It reduces the amount of tax you owe dollar-for-dollar, down to zero. For FY 2025-26, SAPTO provides the following maximum offsets:

The effective tax-free threshold listed above means that a single Age Pensioner with up to $32,279 in total taxable income will pay $0 income tax in FY 2025-26. For comparison, the maximum single Age Pension rate in 2025-26 is approximately $28,254 per year (including the Pension Supplement), which falls well within this threshold.

Pensioner Tax Offset (PTO) for Non-SAPTO Recipients

If you receive a government pension like Carer Payment or Disability Support Pension but are under Age Pension age, you may qualify for the Pensioner Tax Offset (PTO) instead of SAPTO. The maximum PTO is $1,030 for FY 2025-26, with a phase-out threshold beginning at $36,042. This provides a lower effective tax-free threshold than SAPTO but still reduces your tax liability significantly.

Pensioners under Age Pension age can also claim the Low Income Tax Offset (LITO) if they earn under $66,667. LITO provides up to $700 and phases out between $37,500 and $66,667. Between PTO and LITO, many payment recipients pay zero tax.

Medicare Levy for Pensioners

The Medicare Levy of 2% applies to most Australian residents, including pensioners. However, if your taxable income is below the Medicare levy exemption threshold, you do not pay the levy. For FY 2025-26, the exemption threshold for pensioners differs from standard thresholds:

Between these generous thresholds and the shade-in zone (where only a partial levy applies), most Age Pensioners pay no Medicare Levy.

Real Examples: How Much Tax Do Pensioners Pay?

Let us look at three common scenarios to see how these rules work in practice.

Example 1: Single Age Pensioner, No Other Income

A single homeowner receives the full Age Pension of approximately $28,254 per year (including Pension Supplement) in FY 2025-26. They have no other income. Result: $0 income tax, $0 Medicare Levy. Their SAPTO offset covers the small amount of tax that would otherwise be due.

Example 2: Single Age Pensioner with Part-Time Work ($15,000 extra)

A single pensioner earns the Age Pension ($28,254) plus $15,000 from part-time work, for a total of $43,254. Result: $0 income tax, $0 Medicare Levy. Their total income is $43,254 — below the $44,169 full levy threshold — and SAPTO covers the tax.

Example 3: Single Pensioner with Investment Income ($50,000 Pension + $15,000 Rental Income)

Total income of $65,000. The tax on this without offsets would be about $9,088. SAPTO (phased down) reduces this to approximately $7,600. The Medicare Levy of 2% adds $1,300. Result: ~$8,900 total tax. This highlights that once a pensioner's income rises significantly, the tax protection from SAPTO diminishes.

How Superannuation Affects Your Pension Tax

If you also receive superannuation income — either as a lump sum or an account-based pension — it counts as taxable income. For those aged 60 and over, superannuation pension payments from a taxed super fund are generally tax-free. This is a major advantage, as it means your super income does not add to your taxable income for Age Pension tax purposes.

However, superannuation lump sums (if you are under 60) may be taxed at concessional rates. The first $235,000 of a taxed super lump sum is tax-free for those under 60. Amounts above that are taxed at 15% plus the Medicare Levy. If you are 60 or over, all super lump sums and pensions are tax-free.

Do You Need to Lodge a Tax Return If You Receive a Pension?

Even if you owe $0 tax, you may still need to lodge a tax return. Centrelink reports your pension payments to the ATO, and the ATO may issue a "short form" or "pre-fill" return. If your taxable income is below the tax-free threshold and tax was withheld by your employer (if you work), you must lodge to claim a refund. If you have no tax withheld and no other income, you can usually use the ATO's "non-lodgment advice" form instead of a full return, available through myGov.

Use the Take-Home Pay Calculator on myPayAU to see exactly how your pension and any additional income are taxed. You can also check the Income Tax Calculator for the full rate breakdown.

Frequently Asked Questions

Is the Age Pension taxed in Australia?

Yes, the Age Pension is considered taxable income and must be declared in your tax return. However, most Age Pension recipients pay no tax thanks to the Senior and Pensioners Tax Offset (SAPTO), which offsets the tax due. A single pensioner with no other income pays $0 in income tax.

Do I need to pay tax on my DVA pension?

It depends on the type of DVA pension. The DVA Service Pension is taxable and treated like the Age Pension. However, the DVA Disability Pension (for permanent impairment) is tax-free and does not need to be declared. DVA War Widow/er pensions are partially taxable — the "wholly dependent partner" component is tax-free, but other components may be taxable.

What is the tax-free threshold for pensioners in 2025-26?

For single Age Pensioners who qualify for SAPTO, the effective tax-free threshold is $32,279. This means you can earn up to $32,279 in total taxable income before paying any income tax. For pensioners under Age Pension age using PTO, the effective threshold is lower at approximately $36,042 (before PTO phases out), but LITO may also apply.

Do I pay Medicare Levy on my pension?

Yes, the Medicare Levy applies to pensioners too, but the exemption threshold is much higher: $35,335 for single pensioners. If your taxable income is below this threshold, you pay no Medicare Levy. Between $35,335 and $44,169, a reduced (shade-in) levy applies. Most full-rate Age Pension recipients earn well under $35,335 and pay no levy.

Can I claim the Low Income Tax Offset (LITO) on a pension?

If you are under Age Pension age and receive a Centrelink payment like Carer Payment or Disability Support Pension, you can claim LITO (up to $700) in addition to the Pensioner Tax Offset. However, once you reach Age Pension age, you qualify for SAPTO instead, and you cannot claim both SAPTO and LITO — SAPTO is more generous.