How to maximise your tax-free income with the latest budget changes

While last week’s federal budget contained few surprises, the unexpected tax cuts are likely to have a significant impact on Starts at 60 readers and those making heavy use of superannuation in the lead-up to retirement.

The changes will lift the amount of money you can earn before you pay any tax. For seniors, the increase will be around $1,000 each.

While the unexpected $5.15 per week tax cut has been lambasted by many, those earning relatively low incomes will notice the impact more than others.

Under the proposal, the lowest marginal tax rate falls from 16 percent to 15 percent on July 1 2026 with a similar reduction to 14 percent on July 1, 2027.

In the same budget, the government announced increases to the lower Medicare levy thresholds. Below these levels and most won’t pay the compulsory 2 percent Medicare levy.

This rate can be even higher for high-income earners who don’t have adequate private health insurance cover in place.

For singles, the new threshold will be gross income of $27,222 per annum, an increase of $1,722 and for families an increase from $45,846 to $45,907. Each dependent child increases the threshold by $4,216.

Single seniors and pensioners aren’t liable for the levy up to an income of $43,020 and for family seniors (as in a couple) and pensioners, that level is now $59,886.

It is important to note that these increases to the Medicare levy thresholds are back-dated to July 1, 2024.

When now passed tax cut is combined with the change in the Medicare levy and special tax credits are added into the mix, there’s an increase in the income amount you will be able to earn tax free.

The two relevant tax credits or offsets for Starts at 60 fans are the Low Income Tax offset abbreviated to LITO and the Seniors and Pensioners Tax Offset or SAPTO. SAPTO becomes available when you reach the age pension age of 67.

From July 1, 2026, a single person or each member of a couple under pension age, could earn $22,867 before they are liable to pay any tax or Medicare levy to the ATO. The current level is $22,575. That’s because only the LITO applies when you are under pension age.

For seniors, the LITO and SAPTO combined gives them a tax free amount of $32,773 each for members of a couple and for singles, the new limit to apply from July 2026 will be $36,960.

All of these figures will increase again on July 1, 2027.

And a special warning for Starts at 60 subscribers.

If you are dumping money into superannuation using concessional contributions either through salary sacrifice or personal tax-deductible contributions, the new figures are particularly important.

All concessional contributions are subject to 15 percent contributions tax which is deducted by the super fund when the contribution is received and identified as a concession contribution.

The super fund completely ignores the member’s personal tax position, and must pay the contributions tax.

It means that if you make a concessional contribution which brings you below the tax free threshold, a 15 percent contributions tax is being deducted anyway. This is a wasted tax expense because your income is such that you’re not liable to pay any tax if you had received that same money in your hand.

You can still make non-concessional contributions to super which don’t attract a contributions tax.

In some cases, tweaks to the deductibility status of contributions can be made after the end of the financial year, but before you lodge your income tax return.

Save this page, you’ll need the numbers next year – providing there’s no further changes.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.