For educational purposes only. Not tax, legal, or financial advice. Tax laws change frequently. Consult a registered tax agent or CPA for your specific situation.
Retirees starting a business face the standard ABN, income tax, and GST obligations but benefit from SAPTO (maximum $2,040 for singles in 2025-26), which combined with LITO can push the effective tax-free threshold into the mid-$30,000s. Self-employment income counts toward both the Age Pension income test (reducing pension above the fortnightly free area) and the Commonwealth Seniors Health Card income limit ($101,105 for singles in 2025-26). Superannuation Guarantee is 12% from 1 July 2025, but sole traders have no obligation to pay SG to themselves.
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There is no age limit on applying for an ABN or running a business in Australia. The complexity for retirees is that self-employment income feeds into three systems simultaneously: the ATO (income tax, GST, BAS), Services Australia (Age Pension income and assets tests), and health concession eligibility (Commonwealth Seniors Health Card, Medicare Levy Surcharge, private health insurance rebate tiers). A sole trader structure is usually simplest because business profit flows directly into the individual tax return where SAPTO and LITO apply, but Centrelink assesses the same income under its own rules with different thresholds and taper rates.
The reality this serves
Retirees and near-retirees starting or running a small business in Australia while navigating Age Pension income and assets tests, SAPTO, transition-to-retirement income streams, downsizer contributions, and the Commonwealth Seniors Health Card. Handyman services, consulting, craft sales, online tutoring, market stalls: the business is often modest, but the interaction between Centrelink, super, Medicare, and the tax system is not.
Age Pension income test and self-employment
Services Australia applies an income test to the Age Pension. Business income (net profit from self-employment) is assessed alongside wages, investment income, and deemed income from financial assets including super balances. The income-free area for singles is approximately $218 per fortnight and approximately $380 combined for couples (check Services Australia for exact indexed amounts from 1 July 2025). Above the free area, pension reduces by 50 cents for every dollar of income over the threshold. From Age Pension age (currently 67), super balances are included in the assets test and deemed for the income test. A successful business year can push combined income above the taper zone, reducing or eliminating the pension entirely. Centrelink may also scrutinise arrangements that appear designed to reduce assessable income (such as retaining profits in a company or trust structure) under deprivation rules.
Self-employment income is assessed under the Age Pension income test. Pension reduces by 50 cents per dollar above the income-free area.(Social Security Act 1991 s 1064 (Pension Rate Calculator A))
SAPTO and the effective tax-free threshold for seniors
The Seniors and Pensioners Tax Offset provides a maximum of $2,040 for eligible singles and $1,602 each for members of a couple in 2025-26. Combined with the Low Income Tax Offset ($700 maximum), an eligible single senior can earn in the mid-$30,000s (approximately $35,000 to $36,000 depending on exact circumstances) before paying any income tax. SAPTO eligibility requires holding a Commonwealth Seniors Health Card, a Pensioner Concession Card, or receiving certain Veterans' Affairs payments. For a retiree running a sole trader business, SAPTO applies to total taxable income (pension plus business profit plus investment income), not business income alone. Operating through a company forfeits access to SAPTO on business profits because company income is taxed at the company rate, not the individual rate.
SAPTO provides a tax offset of up to $2,040 (singles) for eligible seniors, effectively raising the income level at which tax first applies.(ITAA 1997 s 160AAAA; ATO SAPTO guidelines)
Superannuation: voluntary contributions and downsizer
Self-employed retirees (sole traders, partners) have no obligation to pay Superannuation Guarantee to themselves, but can make voluntary contributions. Personal deductible contributions are capped at $30,000 (concessional cap for 2025-26). Non-concessional contributions are capped at $120,000, with standard bring-forward rules available for eligible individuals. The downsizer contribution allows individuals aged 55 and over to contribute up to $300,000 per person (not per couple) from the proceeds of selling a qualifying home owned for 10 or more years. Downsizer contributions do not count against concessional or non-concessional caps, but the contributed amount is included in the total super balance for transfer balance cap and Age Pension assets test purposes.
Downsizer contributions of up to $300,000 per person from qualifying home sale proceeds are available from age 55, outside normal contribution caps.(ITAA 1997 s 292-102)
Transition-to-retirement income streams
Individuals who have reached preservation age but not yet turned 65 can access a transition-to-retirement (TTR) income stream from their super fund while still working or running a business. The TTR pension pays between 4% and 10% of the account balance each year. Earnings on assets supporting the TTR pension in accumulation phase are taxed at up to 15% within the fund (not tax-free as with a retirement-phase pension). Once the member satisfies a condition of release (turning 65, or retiring after reaching preservation age), the TTR can convert to a full account-based pension with tax-free earnings. For a retiree starting a business, a TTR can supplement business income during early loss-making years without triggering a full super withdrawal.
Allowable expenses in context
Retiree sole traders claim deductions under the same rules as any other business (ITAA 1997 s 8-1). The critical distinction is hobby versus business: the ATO scrutinises retirement-age activities closely for genuine commercial intent.
Business vehicle use: logbook method (12-week logbook establishing business-use percentage applied to actual costs) or cents-per-kilometre (88 cents per km in 2025-26, capped at 5,000 business km). Only the business portion is deductible.
Home office: if a room is used regularly for business (consulting, online tutoring, bookkeeping for clients), claim a proportion of running costs based on floor area and time. A spare room used occasionally for hobby craft is not a business expense.
Tools and equipment: instant asset write-off applies to eligible small business assets. Shared personal and business equipment is apportioned.
Professional memberships and insurances: deductible where directly related to the business (professional indemnity, public liability, trade association fees).
NOT deductible: hobby expenses (even if the hobby occasionally produces income), personal health insurance premiums (though PHI rebate may apply), and personal super contributions are claimed as a separate deduction, not a business expense.
Hobby vs business: the ATO applies indicators including commercial intent, repetition, scale, organisation, and profit motive. A retiree selling handmade items at a monthly market with no business plan, no ABN, and no intention to profit is a hobbyist. Running the same activity with an ABN, separate bank account, marketing, consistent supply, and a profit motive is a business.
Support schemes
Commonwealth Seniors Health Card (CSHC)
Eligibility: Self-funded retirees of Age Pension age who do not qualify for Age Pension. Income test: adjusted taxable income below $101,105 (singles) or $161,768 (couples) as at March 2026 (indexed). No assets test. Business income counts toward the income limit via adjusted taxable income.
Age Pension (work bonus)
Eligibility: Age Pension recipients who earn employment or self-employment income. The work bonus provides an income-free area specifically for work income, on top of the standard pension income-free area.
Low Income Tax Offset (LITO)
Eligibility: All Australian resident individuals with taxable income below the relevant thresholds. No application required.
Frequently asked questions
Does running a business affect my Age Pension?+
Yes. Net self-employment income (business profit after deductible expenses) is assessed under the Age Pension income test alongside wages, investment income, and deemed income from financial assets. Your pension reduces by 50 cents for every dollar of income above the income-free area (approximately $218 per fortnight for singles). A strong business year can reduce or eliminate your pension. Business losses may reduce your assessed income, but Services Australia can apply deprivation rules if it considers the arrangement is designed to inflate Centrelink eligibility rather than reflect genuine commercial activity.
Can I contribute business profits to super after age 67?+
Yes. There is no upper age limit for super contributions. Self-employed individuals can make personal deductible (concessional) contributions up to the $30,000 cap and non-concessional contributions up to the $120,000 cap for 2025-26. The old work test requiring 40 hours of work in 30 consecutive days has been largely removed for contributions. However, super contributed is then counted in the Age Pension assets test and deemed for the income test, so the Centrelink benefit of sheltering income in super is limited.
What is the downsizer contribution and can I use it while running a business?+
The downsizer contribution allows individuals aged 55 and over to contribute up to $300,000 per person from the proceeds of selling a qualifying home owned for 10 or more years. It sits outside normal concessional and non-concessional caps. Running a business does not affect eligibility. The contribution is not tax-deductible (it does not reduce your taxable business income), but once inside super, the funds are held in the concessional super tax environment. The contributed amount counts toward the transfer balance cap and is included in the Age Pension assets test.
Is my retirement hobby actually a business for tax purposes?+
The ATO distinguishes based on commercial intent, scale, repetition, organisation, and profit motive. Selling homemade jam at a Christmas market once a year with no business plan is a hobby: the income is not assessable and expenses are not deductible. Running the same activity weekly with an ABN, separate bank account, marketing, stock management, and a genuine intention to profit is a business. If it is a business but makes a loss, Division 35 non-commercial loss rules may defer the loss against other income unless you meet the $250,000 adjusted taxable income threshold and one of the four objective tests (such as $20,000 assessable income from the activity or profits in three of the last five years).