UK local government ill health pension

[ant111]

I have received a UK local gov ill health pension for many years and I"ve been an Australian tax resident for four years. This pension hasn't been enough to pay tax on yet but together with my new state pension may put me over the threshhold and make me liable for Australian tax. I have no other income but these low  income pensions. Is this UK local gov ill health pension still classed as an ill health pension if I'm now well and of pension age, is it exempt from tax in Australia? Any advice appreciated. Thanks

[Ken]

No, (generally speaking) pensions are taxed in Australia regardless of whether they are for ill health or not. However you don't get taxed on a low income and you may be entitled to SAPTO (Seniors and Pensioners Tax Offset) which further increases the amount of income a pensioner can have before paying tax and you can claim a UPP (Undeducted Purchase Price) deduction of 8% of your UK state pension.

You might be able to claim a UPP on your local gov ill health pension too - but you'd need to show that you paid into that pension while you were working and how much.

This is all based on you being Australian tax resident on your worldwide income. If you only have a temporary visa then foreign income will be exempt but it sounds like you have PR.

[ant111]

Thanks Ken. Appreciate your reply. I am a tax resident with pr. Also I was aware of UPP and SAPTO. And I'm on a low income, coming up to 68yo. Doesn't seem fair that foreign superannuation in payment is taxable at my age when for Australians pensions are tax free.

[Ken]

1 hour ago, ant111 said:

Thanks Ken. Appreciate your reply. I am a tax resident with pr. Also I was aware of UPP and SAPTO. And I'm on a low income, coming up to 68yo. Doesn't seem fair that foreign superannuation in payment is taxable at my age when for Australians pensions are tax free.

Although there are some exceptions Australian pensions are not tax free. The following pensions are all taxed:

Age Pension

Veteran Payment

Disability Support Pension if age-pension age or older

Invalidity Service Pension if age-pension age or older

 

And if you are thinking that Super is not taxed, no that was taxed at 15% when you (or your employer) paid in to it (and the highest rate tax payers paid 30%).

Edited September 14, 2022 by Ken