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SAPTO and LITO, or do you really need an SMSF?

It is well known that any money withdrawn from superannuation after age 60 is tax-free. Less well known is the arrangement that allows a couple over the age of 67 to earn up to $57,948 per year and a single person up to $32,279 per year outside super and pay no tax.

This is because of the operation of two tax offsets which together eliminate all the tax payable. It is important to note a tax deduction reduces the income on which tax is payable, a tax offset reduces the tax payable on that income.

The current tax-free threshold is $18,200. For low-income earners, there is also a Low-Income Tax Offset (LITO). It effectively allows working Australians to earn up to $21,884 per year before they need to pay any income tax or Medicare Levy.

In addition to the LITO, people who have reached pension age are entitled to use another tax offset called the Senior Australians and Pensioners Tax Offset (SAPTO). The important element here is not that the person receives the age pension, but that they have reached pension age.

SAPTO works in tandem with LITO. This means that a single person over age 67 can earn $32,279 before they pay any tax as the LITO and the SAPTO together offset the tax payable. The SAPTO for each member of a couple means they can each earn $28,974, or $57,948 together, tax-free. There is also no Medicare levy payable for taxpayers eligible for SAPTO.

Source: Australian Taxation Office

Just as the LITO is tapered as income exceeds the threshold, the same applies with SAPTO but the taper rate is much more severe. The SAPTO is reduced by 12.5 cents per dollar of income so there is no SAPTO available when income reaches $50,119 for a single person or $83,580 combined income for a couple.

Implications of the two working together

Thanks to the LITO and SAPTO, a couple with a taxable income below $57,984 pay no tax. In that case, their tax position is the same as if their income was drawn from super. If we assume that these assets were generating an income yield of 6%, it would mean that this couple could hold over $900,000 in assets outside super and have the same tax-free income as if those assets were held inside super, assuming no other taxable income. A single person could have over $500,000 invested in their own name and still pay no tax.

For some seniors over the age of 67 this may encourage them to close their SMSF with its fees and regulations. By holding those assets in their own name, they would have to go back to completing a tax return, particularly if they wanted a refund of their unused franking credits.

It also means that, in addition to tax-free income derived from investments held inside super, seniors over the age of 67 can also hold substantial assets outside super with no income tax to pay. Withdrawals from a super fund are tax-exempt, after age 60, and are not declared on a tax return and as shown, SAPTO allows substantial tax-free income from assets outside super.

Risks of moving money out of super

If the assets are held outside super and as the income grows over time, some tax may become payable if the income progressively exceeds the tax-free threshold, which is not indexed.

Similarly, capital gains are taxable income in the year the asset is sold. Outside super, any capital gains on assets sold may trigger a tax liability whereas that is not be the case in a super fund paying a pension.

If one member of a couple survives the other, their effective tax-free threshold is reduced from the couple rate of $57,984 to the single rate of $32,279. If the surviving spouse continues to hold all the assets in their own name, the income produced could trigger a tax problem which may not arise inside a super fund. Holding assets in their own name requires different estate planning and asset protection arrangements from those who hold assets in a super fund.

Assets transferred out of a super fund to benefit from SAPTO are difficult to put back into super because of the contribution caps. Removal of the work test makes this somewhat easier for those under age 75, but this decision is almost irreversible.

SAPTO is another example of seniors paying less tax than the working population and is often suggested for removal as a way of improving taxation equity. There is a legislative risk that it may be removed in future, although that would affect mainly age pensioners and seems unlikely.

SMSFs are considered by many to be the investment platform of choice because of the tax concessions they offer, but they are not cheap, particularly for retirees with modest investment balances. SAPTO may provide people with modest investment balances the same tax-free income as a super pension with none of the fees or regulations.

Important to note

This article is not meant as financial or tax advice as I am not qualified to offer either. It is important to stress that any decision to close down a SMSF has enormous implications for future tax liabilities and should not be taken without sound advice from a qualified accountant and/or financial adviser who can consider individual circumstances.


Jon Kalkman is a former Director of the Australian Investors Association. This article is for general information purposes only and does not consider the circumstances of any investor. This article is based on an understanding of the rules at the time of writing and anyone considering changing their circumstances should consult a financial adviser.


John S
December 04, 2023

This article seems to suggest that you don't have to be eligible for a pension to receive this tax offset.

"The important element here is not that the person receives the age pension, but that they have reached pension age."


In looking at the tax office web site:

This site suggests that you must be ELIGIBLE for the pension to get this offset.

The calculator on the tax office web site seems to confirm that only those eligible for the pension can get the offset

Is there something that i am missing in the article that would make both sites correct?

December 05, 2023

At "Were you eligible (?)" click question mark.

John S
December 05, 2023

Who would have thought that someone that someone who has too many assets and too much income could be ELIGIBLE for a "Australian Government age pension or similar type of payment"

I guess by the definition on the ato web site, that I cam ELIGIBLE for exactly ZERO pension, but still ELIGIBLE for the SAPTO

Go figure!!!

Thanks Dudley

December 05, 2023

"Who would have thought":

that paying for the Age Pension would result in not being paid the Age Pension.

November 14, 2023

Good article. And reflects a fair and square arrangement for those >67 who still wish to earn or invest outside super. Good on them, why keep money in super propping up the industry (union) funds .
And God will not save the Governor who removes these offsets.

October 31, 2023

Thank you Jon. There isn't a day go by when I don't hear someone talking about their SMSF. To be frank, I think SMSFs are overrated and misunderstood by most people. The perception of control and concessional tax rates seems to lure people in without any understanding as to how super funds (in general) operate in retirement phase. As you have pointed out, we have a fairly generous personal tax system for people in retirement phase. Unfortunately, most people choosing the SMSF route are not in that phase so they may be oblivious to what our current personal tax system offers.

Graham W
November 01, 2023

I can not agree Steve. I have been involved with SMSF' s or there predecessors since the late 1970,s. Yes the first version Section 23f funds were marvellous for tax reduction purposes. As an accountant, financial planner and finally as an SMSF auditor there is nothing better for many many reasons for there use. For example where else could you buyt gold bullion for $1,000 per oz and take it out in specie ,tax free at 3,000 per oz ????.

SMSF Trustee
November 02, 2023

OMG Grahame W that is the most pathetic reason for using an SMSF I've ever heard!

Make a general case for tax free realised capital gains on any asset and you have a valid point, but narrowing it down to gold is nonsense.

Michael Sandy
October 30, 2023

thank you

October 30, 2023

Confused after reading ATO’s web site. Currently aged 67 but not entitled to aged pension because of assets test. Am I allowed the SAPTO provisions? It is not clear.

October 30, 2023

If "67 years or older from 1 July 2023" then yes.

Graham W
October 27, 2023

My wife and I are looking at transferring our SMSF assets to a family trust and an annuity or two. The accounting costs should be similar but no need to pay for an audit. We will also avoid the mandatory pension drawdowns which increase as we get older and can be problematic if not enough is drawn. I do not see that we will have any tax issues and will be well below the current levels. We are looking at an annuity or two to give a regular level of income. This should allow us to also qualify for some Age Pension as only 60 % of the funds put into the annuities are asset tested. The proposal should be easier for my wife to handle the financial issues, as I am likely to go before her.

October 27, 2023

"transferring our SMSF assets to a family trust":

Look into starting a [investment] company with different class of share for each shareholder.

Personal income tax is gone for ever, company tax stays in the franking account until franking credits claimed by dividend recipients.

Graham W
October 30, 2023

Not really Dudley as a family trust gets a 50% discount on capital gains made, a company gets no discount.

October 30, 2023

A company can be used as a buffer to ensure each shareholder's personal marginal tax rate is 0%.

If personal marginal tax rate is 0% then capital gains taxed in company at 30% and paid as dividends plus franking credits tax at 0% like other personal income.

Tax free threshold for SAPTO couple:
= 2 * $29,784
= $59,568
Marginal tax rate:
= 31.5%

If rate at which capital gains are realised, plus other income, is substantially more than $59,568 / y then assets better held personally or in trust.

When SMSF assets sold to move funds outside, realised capital gains will be taxed at 10% in accumulation accounts and 0% in disbursement accounts leaving no unrealised capital gains. Then only discount would be on capital gains realised outside SMSF.

Peter C
October 26, 2023

SAPTO is just baby boomer middle class welfare and should be scrapped. The money saved should be used to pay down debt.
Once out debt is paid down then individual income should be slightly reduced to ease the burden on sole traders and employee.

October 26, 2023

"SAPTO is just baby boomer middle class welfare":

SAPTO Single:
Shading-out threshold 32279
Cut-out threshold 50119

Without SAPTO:
A single, home owner, no assets, Age Pensioner would have a gross income of 28514.20 / y and pay 1683.46 / y tax.
Add $100 income, to 28614.20, and pay 1712.46 / y tax.
Marginal tax rate:
= (1712.46 - 1683.46) / (28614.20 - 28514.20)
= 0.29
= 29%

With SAPTO the same Age Pensioner pays $0.00 / y tax.

SAPTO is welfare for the not quite destitute poor.

November 09, 2023

Younger people who whinge about so-called baby boomers getting "middle class welfare" completely ignore the fact that retirees have no income other than what they can generate from their lifelong savings/and or govt pension. They no longer can rely on a salary from working. And, also remember that annual salaries back in the day were much lower than today. No $100k salaries with Fringe Benefit perks. And women earned 75% less than men. And if they got married, in many cases they had to resign. No super back then which is why so many retirees rely on the Age Pension, which Paul Keating called a "destitute payment". As Dudley notes, SAPTO is only for the low income earners, Under $33K p.a. Hardly, a liveable wage in today's inflationary environment.

October 26, 2023

Perhaps it should only be available to those who have reached Age Pension age and continue to work. An incentive similar to the Centrelink Work Bonus.

Shane Curran
October 27, 2023

Fantastic article Jon - many people in pension phase have no idea of this ??

October 27, 2023

What rubbish,I’ve worked since I was 15 and paid taxes,I am 60 now and deserve every cent by NOT paying tax.The millennials can work just as hard as I did and pay down debt,but they won’t work 3 jobs,they wait for hand me downs,

October 26, 2023

Great article! People often forget about the SAPTO/LITO combination once they have reached Age Pension age. One other thing to note is that corporate actions can be a pain when funds are held outside the super environment because sometimes you have no control over additional income or capital gains in a particular financial year. Also, in relation to the refunding of imputation credits, I believe that if you are not required to lodge a tax return because your income is too low, you can simply lodge a Refund of Imputation credits form or apply for a refund using ATO online.

October 26, 2023

If one member is retired and over 67 and the other is not . Does the SAPTO and LITO equate to $32,279 or $57,984 ?

October 26, 2023

Thanks for this article , very topical for us at present as looking at this strategy in the near future . Should add that if one has ( fortunatly or unfortunatly) accrued capital losses in their own name , this offers another avenue to offset future Capital gains upon disposal.
Have to agree though, that regulation/political uncertainy are one of the main concerns along with asset protection issues.

October 26, 2023

I wonder how long SAPTO and the current pension tax positions will hold ? The government needs to source funds somewhere.....

October 26, 2023

"how long SAPTO and the current pension tax positions will hold":

Single home owner Age Pension, How much:
= 26 * 1096.70
= 28514.2

Full Age Pension Assets:
= 301750

Yield 5%:
= 5% * 301750
= 15087.5

Total income:
= 28514.2 + 15087.5
= 43601.7
Tax payable:
= 4139.96
Without SAPTO:
= 5303.26

To yield same gross income without Age Pension requires capital of:
= 43601.7 / 5%
= 872034

No Age Pension Assets:
= 667500

October 26, 2023

To avoid 31.5% tax on income greater than $33,088 the maximum capital is:
= (33088 - 28514.2) / 5%
= 91476

Then remaining 0% (Commonwealth) tax rate is on capital stuffed into owned home.

October 27, 2023

So the age pension is added onto any income generated for tax purposes is this correct

October 26, 2023

"couple over the age of 67 to earn up to $57,948 per year":
"single person up to $32,279 per year ":

Couple: 2 * $29,783 / y = $59,566 / y. +$1 = 31.5% Tax.
Single: $33,088 / y. +$1 = 31.5% tax.

Dave Wellington
October 26, 2023

Did you select the SAPTO button? Mine shows $0 tax as per article on $32k p.a. single.

October 26, 2023

"$0 tax as per article on $32k p.a. single.":
Taxable income must exceed $33,088 for tax to exceed $0.

'Annual salary': $0
'No Superannuation Guarantee'
'Senior & pensioner offset (SAPTO)'

'Other income or loss': $33,089
Tax: $0.03

'Other income or loss': $33,189
Tax: $31.53

Marginal tax rate:
= (31.53 - 0.03) / (33189 - 33089)
= 0.315
= 31.5%

October 26, 2023

Thank you for this informative article! As a tax consultant, I'm always on the lookout for valuable insights and updates in the field of taxation. 


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