Retiring Overseas? How Your Australian Age Pension is Taxed

The dream of retiring overseas on the Australian Age Pension is a popular one. But while many consider the cost of living and the change in pension payment rates, a crucial question is often overlooked: What about tax?

Is the Age Pension still tax-free when you live abroad? Do you lose your tax offsets? Could you even be taxed twice—once by Australia and once by your new home country?

Understanding how the Australian tax system treats your pension when you become an expatriate is critical. It can be the difference between a comfortable retirement and a significant, unexpected drop in your income. This guide breaks down what you need to know.

Is the Age Pension Taxable When You're Overseas?

Yes. Once you are living overseas for an extended period (more than six weeks), your Age Pension payment is reduced to the basic rate plus the basic pension supplement. From a tax perspective, this entire amount is considered taxable income in Australia.

How much tax you actually pay, however, depends entirely on one thing: whether you are still considered an Australian resident for tax purposes.

Tax Rules for Australian Tax Residents Living Abroad

If the Australian Taxation Office (ATO) still considers you a tax resident, you will be taxed on your worldwide income, which includes your Age Pension.

The good news is that as a resident, you retain access to key benefits:

• The tax-free threshold.
• The low-income tax offset.
• The seniors and pensioners tax offset (SAPTO).

Together, these offsets create a much higher effective tax-free threshold than the standard $18,200. In the 2025 and 2026 financial years, this means a single pensioner can earn up to $35,813 and pay no tax. For couples, each person can earn up to $31,888 and pay no tax.

If the Age Pension is your only source of income, you will fall comfortably below this threshold and pay no Australian tax.

Tax Rules for Non-Residents for Tax Purposes

If you permanently move overseas and sever your ties with Australia, you will likely become a non-resident for tax purposes. This is where the tax treatment changes dramatically.

As a non-resident:

• You lose the tax-free threshold.
• You lose the low-income tax offset and SAPTO.
• You are taxed on all Australian-sourced income, including your Age Pension, from the very first dollar.
• The tax rate starts at 30% and increases progressively with your income, according to the ATO's non-resident tax rates.

This non-resident tax rate is the default if you move to a country that does not have a tax treaty with Australia.

Case Study: The Real-World Impact of Non-Resident Tax

Let's look at an example. Meet John, a single pensioner who receives the full Age Pension and maximum rent assistance while living in Australia.

• In Australia: John’s fortnightly payment is $1,361. This includes his pension, supplements, and rent assistance. Because his income is below the effective tax-free threshold, he pays no tax. He also has his Pensioner Concession Card.
• Retiring Overseas (No Tax Treaty): John’s pension payment is immediately reduced. He loses his energy supplement, rent assistance, and Pensioner Concession Card. His new gross payment, based on the basic pension rate and basic supplement, is now $1,080.30 per fortnight.

On top of this reduced payment, he is now taxed as a non-resident at 30%. After tax, his final disposable income is just $756 per fortnight.

His take-home pay has dropped from $1,361 to $756—a difference of over $600 every two weeks. While John hoped the lower cost of living overseas would help his pension stretch further, he now has to weigh whether those savings are enough to cover this significant drop in income and the loss of Medicare and other benefits.

How Tax Treaties Can Change Everything

The default 30% tax rate can be overwritten if you move to a country that has a tax treaty with Australia. Australia currently has income tax treaties with more than 40 countries, including the UK, USA, New Zealand, and many nations across Europe and Asia.

These treaties determine which country has the primary right to tax your pension.

• If the treaty gives Australia taxing rights: Your pension will be taxed here under the non-resident rules (30% from the first dollar). However, your new country of residence will often exempt that income from their own tax or give you a credit for the tax you’ve already paid in Australia to prevent double taxation.
• If the treaty gives your new country taxing rights: Australia may not tax your pension at all. Instead, it will be subject to the local tax laws of your new country. In some cases, if that country doesn't tax foreign pensions, you could end up paying no tax whatsoever.

How Do You Know if You're an Australian Tax Resident?

Determining your tax residency isn't just about where you live; it comes down to how the ATO assesses your ties to Australia using four main tests (the resides test, domicile test, 183-day test, and superannuation test).

This can be subjective. If you live overseas but maintain strong financial and personal ties to Australia (like a family home or local bank accounts), you may still be considered a tax resident. It's a complex area, and the government has also proposed changes to these rules (known as the "bright-line test"), which could make it harder for some people to break tax residency in the future.