Close Menu
Creating Freedom Through Financial Independence


What Are Taxes Like When You Retire Early in Australia?

March 27, 2023

People always find something to worry about.

The FI community – and wealthy people in general – are no exception.

One of those concerns is taxes.

Specifically, if we’re living off our investments, how much will tax eat into our returns?

It’s natural to wonder about such things.  Because if we’re leaving the certainty of full-time employment, then we want to make sure there’ll be no nasty financial surprises on the other side.

Thankfully, things are much better than you might expect!

In this article, we’ll explore the topic of taxes after reaching financial independence.  I’ll run through some specific examples and explain the tax outcomes in each case.

Investment income, franking credits, capital gains, part-time income – we’ll cover it all!

By the end you’ll have a good grasp on how to deal with taxes when it’s finally time to kick off your work shoes and sprawl out on the lush green grass of early retirement.


Before we begin

In an effort to keep this article simple (it’s still 2,000+ words!), I’m unable to cover the limitless possible examples.

Think about how many things could alter your personal tax outcome…

— Single vs couple.
— Continued earnings vs fully retired.
— Using trusts and structures or not.
High yield or low yield investments.
— Property, shares, or a combination of both.
— Dividends with full, part, or no franking.
— Using capital from selling assets or the natural yield.
— Portfolio size and tax bracket.

And of course, we’re talking only in the Australian context.  Taxes are different elsewhere, so you’ll need to figure out what taxes apply to your specific situation.

As a warning, this post is number-heavy.  If you prefer, feel free to skim, read the summaries and then the other sections 🙂

Regardless of your situation, take the below examples as an interesting starting point and a source of inspiration to go and check out your own numbers.


Our taxes since 2017

Regular readers will be aware that we own a combination of property and shares.

We left work with mostly property and some shares.  We’re selling off the properties over time and building the share portfolio since it’s far more efficient at generating cashflow.

In the early years of retirement, our taxes were zero.  In fact, I was accumulating tax losses one year after another.  Why?  Because our properties were still producing a cashflow loss and I had no other income.

(Side note: in the early years, we used proceeds from selling property to pay for these losses, our personal living expenses and invest in shares, as explained here)

As our share portfolio has grown and we’ve sold off property, these tax losses have now been used up.  In addition, interest rates came down (until recently) and I started earning some income, putting me into positive territory for tax purposes.

We’re now just starting to pay more tax again, as our cashflow has improved.  I’ll admit, this scenario is highly unusual from an early retirement perspective, but I wanted to share how we’ve fared tax-wise.  Don’t worry, the below examples are much simpler!


Living off a $1m share portfolio

Let’s use a simple example of a $1m portfolio of 50/50 Aussie and global shares (not an instruction, just an example ASIC… relax).

We’ll assume the dividend yield is 3% (split between 4% for Aussie shares, 2% for global).  That’s $30,000 of dividend income hitting the bank during the year ($20,000 Aussie and $10,000 global).

Following the often used 4% rule, our retiree may wish to harvest another $10,000 from global shares to end up with $40,000.   This effectively evens things out and brings the portfolio back to 50/50 (ignoring market movements for simplicity).

So, what’s the tax outcome?

Worst case, let’s say your share sale resulted in a 100% capital gain.  By the way, you can decide which portions of your holding to sell to improve the tax outcome.

You’ll need to keep very detailed and precise records to do this though.  Alternatively, if you’re a lazy shit like me, you can just rely on Sharesight (affiliate link) to keep track of this for you so you don’t have to worry about it.

Anyway, that’s $5,000 of capital gain to declare.  Less the CGT discount for owning longer than 12 months.  That’s now $2,500 of taxable gains.

There’s also about $5,700 of franking credits from the Aussie dividends, assuming 75% franking.

To calculate these numbers, I’m plugging them into this calculator.  Despite others being prettier (like this version), the one I’m using includes things like the low income tax offset which makes it more accurate.

Numbers below are also rounded for simplicity.  And FYI, the term ‘gross taxable income’ is what the total income tally would be in a tax return at the end of the year.



Cash received during year: $40,000 (dividends + share sale)

Gross taxable income: $38,200 (dividends + franking + taxable capital gain)

Tax owning on this income: $3,800.

Tax already paid: $5,700 (franking credits).

Result: $1,900 refund (approx.)

End position: $41,900 after tax.

Overall tax on cashflow: 0%.



Gross taxable income: $19,100 each (half of above).

Tax owing on this income: $0.

Tax already paid: $2,850 each (franking credits).

Result: $2,850 refund each.

End position: $45,700 after tax combined.

Overall tax on cashflow: 0%.



In both cases, our early retirees are faced with zero tax bill.  In fact, both receive a tax refund due to surplus franking credits.

But what if you have higher expenses and therefore need a bigger portfolio?


Living off a $2m portfolio

Maybe your target investment income is more like $80,000.

By the way, you may not need as much as you think in retirement if your home is paid off.

Let’s look at the tax outcome using the same approach as above.  The portfolio would produce $60,000 in dividends, and another $20,000 is created by selling off a few global shares.

Side note: if you’re finding it tough to stomach the thought of selling shares, I wrote an article detailing my own mental conflict with it and how I came to reframe the idea: My Latest Thoughts on Dividends and Diversification.

We’ll again assume a profit of 100% on the shares sold, so $10,000 of capital gains, $5,000 of which will be taxable thanks to the CGT discount.  Franking credits on the Aussie dividends amount to around $13,000.



Cash received during year: $80,000 (dividends + share sale)

Gross taxable income: $78,000 (dividends + franking + taxable capital gain)

Tax owning on this income: $17,300

Tax already paid: $13,000 (franking credits)

Result: $4,300 tax owing (rounded)

End position: $75,700 after tax.

Overall tax rate on cashflow: 5.4%



Gross taxable income: $39,000 each (half of above).

Tax owing on this income: $4,000 each.

Tax already paid: $6,500 each (franking credits).

Result: $2,500 refund each.

End position: $85,000 after tax combined.

Overall tax rate on cashflow: 0%.



Our couple again has no tax bill to worry about despite this higher level of cashflow.  And our single is facing only a small amount of tax to pay.

Well shit, things are looking pretty good so far!  But what if you plan to work a bit after reaching FI?


Adding part time work after FI

OK, now tax will definitely be higher.  Your employment income comes with no other tax-friendly benefits like investment income often does.

And with this extra income starting to creep into the higher tax brackets, it will start to have a noticeable effect.

Anyway, let’s pick a spot in the middle of the previous two examples – a target FI income of $60,000 per year, or $1.5m shares. 

We’ll assume part time work of $30,000 per person.  This is equivalent to perhaps 2-3 days per week.  This would likely be taxed by your employer at around $2,700 for the year, leaving you with $27,300.

The $1.5m portfolio produces $45,000 of dividends (and $9,600 in franking credits).  In addition, $15,000 of global shares are sold for a gain of $7,500, half of which is taxable (we’ll round it up to $4,000).



Cashflow received during year: $87,300 (dividends + share sale + PT income)

Gross taxable income: $88,600 (dividends + franking + taxable capital gain + PT income before tax)

Tax owning on this income: $20,900

Tax already paid: $12,300 (franking credits + PT income tax).

Result: $8,600 tax owing.

End position: $78,700 after tax.

Overall tax rate on $90,000 of total income: 12.6%



Cashflow received during year: $57,300 each ($114,600 total – same as above except 2x PT income)

Gross taxable income: $59,300 each ($118,600 in total)

Tax owing on this income: $10,500

Tax already paid: $7,500 each (franking credits + PT income tax).

Result: $3,000 tax owing each ($6,000 total).

End position: $108,600 cashflow.

Overall tax rate on $120,000 of total income: 9.5%



Tax is starting to become noticeable now given we’re hitting six figures.  Even still, it’s only eating into around 10% of overall cashflow, with the couple having the slight tax efficiency advantage.

Keep in mind, they might be doing this extra work more for enjoyment than earnings.

And in reality, they’d likely start receiving small tax bills throughout the year from the ATO rather than a big surprise at the end of the financial year.  Tax is also becoming a little more complex now given the various moving parts.


Semi-retirement, surplus wealth and spending levels

We could go into more examples but let’s leave it there.

For those considering semi-retirement AKA semi-FI – where your investment portfolio isn’t enough income to live off just yet – adding part-time income to the mix, in most cases, will still keep you in a happy position of relatively low tax overall.

We can see that, all the way up to the six figure range, tax is barely even worth thinking about.  So those planning to retire on $1m-$2m (or even semi-retiring on less) are going to be left wondering why they ever worrried about tax in the first place!

No need to move to Dubai, or arm yourself with a team of tax-saving specialists in an attempt to ‘protect your wealth’.  Keeping things simple will do just fine.

But we can see that tax – although still low – does creep up once we’re in the higher income zone.  For our example, this is mainly due to the fact that income starts coming from less tax-efficient sources like employment.

In many cases this is ‘bonus income’ being earned after already achieving FI.  So, if tax starts to become an issue or a pain at these upper levels, then diverting money into super is a solid option.  This surplus wealth, which may not be needed given their existing portfolio, can then compound in a more tax-friendly environment.

And yes, there are changes being made to super tax rates as I write this.  But it’s likely that super will remain more tax-efficient and generous than personal tax rates .  In any case, at this higher level it’s a golden problem to have!

It’s also worth noting this is another area where big spenders are at a disadvantage.  Only those chasing so-called ‘Fat FIRE’ or very large numbers that’ll will need to worry about tax eating into their cashflow.

But if your FI goal is investment income of $50,000 as a single or $100,000 as a couple, then based on the above portfolio, in retirement you’re gong to be faced with zero tax bill at the end of the year. 

By the way, I assure you this portfolio (50/50 Aus/Global) wasn’t chosen for any other reason than simplicity for the example and to show a more complete picture where both dividends and capital gains were used.


Reminders on tax

There are too many possibilities to cover here.  Go and play around with a tax calculator (like this one or this one) to see how things look for your own personal situation.

And remember, choose investments based on their own merit, not on the tax outcome.

Yes, tax impacts our returns.  But trying to reduce or ‘optimise’ tax can really pollute people’s thinking.  They become so focused on not paying tax that all rational decision-making goes out the window.  Don’t let the tail wag the dog.

Let’s be clear: if you retire early in Australia and end up paying lots of tax on your investments, it’s because you have a huge portfolio.   Hardly something to be upset about!

And again, this ‘problem’ can be improved by beginning to move surplus wealth into super.

Ultimately, tax is massively overestimated as an issue in retirement or when living off a share portfolio.  The brain space we give it far exceeds its importance.

The reality is, shares are extremely efficient at producing passive income in a tax effective (and hassle free) way.

Aussie shares typically mean solid dividends and a hefty chunk of tax credits waiting for you with the ATO.  Global shares mean lower yields and harvesting tax-efficient capital gains from the portfolio.

The result: you’ll be pleasantly surprised when it comes time to do your tax return, even when living off a good-sized investment portfolio.


Final thoughts

Apologies for the numbers and complexity in this post!  There’s not really a simple way to explain this without showing you.

Hopefully fleshing out these examples helped put a few minds at ease 🙂

Your overall tax rate when living off your investments will depend on a lot of things.  But whether or not you plan to work after hitting FI, tax is NOT something you need to stress over.

The Australian tax system is relatively friendly for early retirees like us in the FIRE community.  Especially those generating their cashflow from share investments, thanks to franking credits and the CGT discount.

And at the end of the day, that means more cash in your pocket… for coffee dates, camping trips, or whatever the hell you plan to do once you leave the rat race! 🔥


29 Replies to “What Are Taxes Like When You Retire Early in Australia?”

  1. Great article Dave!

    It’s interesting to see just how much less income a single person receives compared to a couple, assuming that the couple has all their investments split 50/50. One thing you often see though is that the couple will follow the advice of their accountant and put all their assets in one person’s name, either because that person isn’t in paid employment and will currently pay less tax on the earnings than the other person, or put it all in the high income earners name because it’s leveraged (hello property!).

    Which works fine in the short term, but in the long term often means that in retirement a couple may end up effectively paying single person tax rates because all of the investments are in one person’s name. This can be particularly bad when selling property when all of the capital gains are in one person’s name and even with the discount for holding the investment for more than 12 months it will still result in a very large tax bill, potentially costing more in that one year than was saved in all the previous years!

    1. Thanks mate, and good point!

      The short-term certain savings are often favoured over long term potential for larger savings. It’s also hard to know many times how one’s finances will unfold over time and who’ll be earning more into the future, so it’s quite a tricky thing to navigate. So unknowable, especially when early retirement is on the cards, that you might as well just go 50/50! 😉

  2. Thanks for this very well researched article. I’m not an Australian, but I cannot believe that I’m the only person who thinks it is high time that franking credits’ tax breaks were scrapped. I also find it amazing (for all of the wrong reasons) how “investors” pay less tax than people actually deriving their income from paid labour in this country. No wonder public services are under-funded. Don’t get me started on the rentier class here exploiting tenants who have no alternative to renting and the tax breaks they enjoy.

      1. Thanks for your helpful comment. I’m not a troll. I have been reading this blog since 2019, and bought Dave’s book. I work in finance as an analyst, and find his insights into investing very interesting. Ordinary investors could learn a lot from him. I guess you do not like my views of the Australian tax system, but my having them does not make me a troll. Equally, I am not the only person to hold such views. I thought Australia espoused freedom of speech?

      1. Thanks for your message, Chris. That was an unnecessary comment. I’m not a troll. See my comments to Gabe.

      1. Thanks for the. suggestion. I’ve worked in the UK and Europe over the last 40 years, and found that there’s things to learned from the financial/tax practices in all places, as well as things that could be improved. No system is perfect, but there are always learning points.

    1. Whilst I also benefit from franking credits (because I’ve been fortunate enough to be able to put any spare money that I’ve ever had from working into purchasing shares even if to the detriment of buying things and holidays that many of my friends spend money on), I certainly do find merit in your argument/comments.
      Franking credits and landlord deductions do benefit the more established, better off parts of society.
      I’m not sure my children will be so lucky – hence still working rather than retiring early! Sadly, ironic.

      1. Thanks Sue. There should certainly be some debate as to what kind of society people want (and how taxes will pay for it). As a high earner I have no problem paying tax, as it benefits society as a whole.

    2. Chandon you say tax breaks should be scrapped but its not a tax break , the reason there is a franking credit there is because tax has already been payed by the company on profits , are you saying stock market investors should be taxed twice?

      1. Thanks Stewart. Basically, yes I am saying share investors should be taxed twice, I am aware of the arguments about franking credits, but the system is a uniquely Australian one. I am not aware of any other country that operates such a system, but correctly me if I’m wrong. I was a shareholder in both Europe and the UK for about 30 years and dividends were paid from companies’ net income – after Corporation tax had been paid by the government. The rate of corporation tax in both places has been changed numerous times in my lifetime, but the principle remains. In the UK, dividends were taxed at a lower rate than one’s income. What would possibly ameliorate the blow of scrapping franking credits here would be to allow share investors to invest a certain sum tax free each financial year. There would be no tax on dividends or capital gains tp pay on investments held in such an account. Look up the UK ISA system, which allows every adult to invest £20k a year (c$35,000) in a tax free environment. A couple could both invest in tax free ISAs.

    3. Thanks Chandon 🙂

      Just to be clear, tax breaks for investors of all sorts is nothing new and evidenced across most developed countries in one way or another. Like anything, including government spending, there numerous pros and cons for and against the idea of incentivising investment and broader business in general. I don’t have strong views on whether things are ‘good’ or ‘bad’ as it’s quite a nuanced topic and we can’t change one thing without it affecting something else.

      1. Thanks Dave. That is definitely a good point. As I said in my original comment, thanks very much for a very well researched article.

  3. Strong article mate.
    Something that may lessen tax even more is deductions.
    Someone living the FI life from dividend yield can still claim some small deductions used to manage their portfolio – stationary, internet usage, laptop depreciation.
    Anyone think of others?

    1. Yep, deductions do make a difference, though not a huge difference to be fair. Phone usage as well of course, for managing portfolio etc. If you rent and manage your investments from a home office you could potentially claim a part of that, but a stronger case if you do any sort of work from home.

  4. Great article Dave. Spot on, tax is not an issue when you retire.

    What is somewhat interesting for early retires tax will still be paid (15%) from their superfund. Australia is unusual in retirement accounts for taxes to be paid in accumulation not pension.

    1. That’s a good point. I believe in the US retirement accounts are tax free for the most part?

      Super is still pretty tax-friendly overall I’d say.

  5. This had been such a helpful article as I’ve never really heard the “other” side re: tax when retired and this breaks it down in a way I can understand.

    I legitimately worried how would I possibly retire if the tax was too high…. Solely my lack of knowledge of the realities.

    I love that you apologise for the heaviness of numbers, but that actually helped me a lot in the article to get it – I need to see examples!

  6. Hi Chandon,
    I suggest you need to be careful what you wish for with respect to franking credits. The mental trap we often fall into is to forget that total return from an investment is made up of income (dividends) + capital growth. The reason Aus shares tend to pay higher dividends and have lower capital growth, is due to the tax rules. If you take other jurisdictions which do not have the tax breaks, you will find they pay less dividends but have higher capital growth (as evidenced by lower dividends from international shares). In these cases cash is returned typically through share buy backs, effectively capital gains.
    So my point is that removing franking credits will not necessarily increase tax revenue; the system will adjust to provide tax effective returns to the shareholder in a different way.

  7. Hi Dave,

    I prefer to use this pay calculator.

    It’s more extensive than most and the site has other features some may find useful if they wish to explore it fully.

    As to the debate regarding taxes, I am also inclined to the view there needs to be a change in attitude towards it. To me it is inequitable a person receiving say $80,000 tax free in retirement as an account-based pension is prepared to consume more Government money as they age (as in my case) but not contribute towards that cost which is borne by taxpayers. The argument they paid taxes in the past isn’t a rationale for not paying tax now. As an example, for a while I was receiving medication which cost $1,000 per script yet I was out of pocket by only $40. No guesses where the balance of $960 came from. Multiply that across my age group (70-75) and all services and we cost a lot to maintain. And have no fear, all will be in those age groups eventually – unless they don’t reach that stage.

    Like others of my ilk, I used every legal means to reduce my tax and increase my wealth. The older I get the more I am inclined to the view paying tax is a social responsibility. Should tax arrangements change and I am required to pay more tax, I am OK with it as I am part of this society.

    Anywhoo, that’s my opinion. Others have theirs.

    1. Cheers SK I’ll check that calc out, it looks good!

      Good points mate. I also think the system is too generous in some areas and wouldn’t be upset with changes. Looks like that’s starting to happen, starting with super. A slow and progressive raft of changes would be sensible and let everyone adapt to the new rules over time rather than a rip-the-band-aid-off approach.

      Everyone wants the benefits of taxpayer funded services, but would rather someone else pay for it lol 😉

  8. Hello Dave .

    Would you have any idea if there is , or not , any capital gain due if l were to split my

    own residential block in half and then sell the split half ?

Leave a Reply

Your email address will not be published. Required fields are marked *

See All