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Investment Income in Retirement
Understanding dividends, interest, capital gains, and how Centrelink treats your investments.
Investment income — money your assets generate without you actively working — forms an important part of many Australians' retirement income. Whether it's dividends from shares, interest from savings, or rent from property, understanding how this income is taxed and treated by Centrelink helps you make better decisions about where to hold your investments.
This page provides an overview of the main types of investment income. For deeper dives into specific topics, see our detailed pages on franking credits, rental property income, and the critical question of inside vs outside super.
Types of Investment Income
💵 Dividends
Payments from companies you own shares in.
Tax: Added to assessable income, but franking credits may reduce/eliminate tax.
Centrelink: Share balance is deemed — actual dividends don't matter.
🏦 Interest
Earnings from bank accounts, term deposits, bonds.
Tax: Added to assessable income at your marginal rate.
Centrelink: Balance is deemed — actual interest rate doesn't matter.
🏠 Rental Income
Money from investment property tenants.
Tax: Net rental income (after expenses) is assessable.
Centrelink: Actual net income is counted — NOT deemed.
📈 Capital Gains
Profit when you sell an asset for more than you paid.
Tax: Included in assessable income (with 50% CGT discount if held 12+ months).
Centrelink: Generally not counted as income, but proceeds become assessable assets.
How Centrelink Deeming Works
Centrelink doesn't ask "how much did your investments actually earn?" Instead, they assume your financial assets earn a set rate of return — this is called deeming.
What Deeming Means for You
Centrelink applies deeming rates to your financial assets (cash, shares, managed funds, account-based pensions) to calculate your "deemed income." This deemed income is used for the income test — regardless of what your investments actually earn.
If your investments earn more than the deeming rates → you're better off (extra income doesn't affect pension)
If your investments earn less than the deeming rates → you're worse off (deemed income still counts)
Current Deeming Rates
| Threshold | Single | Couple Combined |
|---|---|---|
| First portion (lower deeming rate: 1.75%) | Up to $66,800 | Up to $110,600 |
| Balance above threshold (upper deeming rate: 3.75%) | Everything above $66,800 | Everything above $110,600 |
Example: Deeming Calculation
Scenario: Helen (single) has $200,000 in financial assets (bank accounts, shares, and an account-based pension).
Deemed income calculation:
First $62,600 × 0.25% = $156.50 per year
Remaining $137,400 × 2.25% = $3,091.50 per year
Total deemed income: $3,248 per year ($124.92 per fortnight)
This deemed income is counted for the Age Pension income test — regardless of whether Helen's actual investment returns are higher or lower.
What Assets Are Deemed?
| Asset Type | Deemed? | Notes |
|---|---|---|
| Bank accounts (savings, transaction) | ✓ Yes | Balance is deemed |
| Term deposits | ✓ Yes | Balance deemed, actual interest rate irrelevant |
| Shares (direct or ETFs) | ✓ Yes | Market value deemed, actual dividends don't matter |
| Managed funds | ✓ Yes | Unit value deemed |
| Account-based pension (super) | ✓ Yes | Balance deemed — actual drawdowns don't affect income test |
| Bonds and debentures | ✓ Yes | Market value deemed |
| Superannuation in accumulation | ✗ No | Asset tested only — no income deemed until pension phase |
| Investment property | ✗ No | Actual net rental income counted (not deemed) |
| Home (principal residence) | ✗ No | Exempt from both assets and income test |
Tax Treatment of Investment Income
While Centrelink uses deeming, the ATO taxes your actual investment income. Here's how each type is treated:
Dividends
Dividends are included in your assessable income, but franking credits can significantly reduce (or eliminate) the tax you pay. Fully franked dividends from Australian companies come with credits for tax already paid at the company level.
For low-income retirees, excess franking credits are refundable — meaning you can receive them as a cash refund even if you have no tax liability.
Interest
Interest income is fully taxable at your marginal rate. There's no special treatment or discounts — though many retirees have low enough total income that little or no tax is payable thanks to the tax-free threshold and offsets like SAPTO.
Rental Income
Net rental income (gross rent minus deductible expenses) is included in your assessable income. See our detailed guide on rental property income in retirement for more on the unique considerations for retirees.
Capital Gains
When you sell an asset (shares, property, etc.) for a profit, the capital gain is included in your assessable income. However, if you held the asset for more than 12 months, you receive a 50% CGT discount — only half the gain is taxable.
Capital Gains Strategy for Retirees
- Timing matters: Realising gains in a year when your other income is low means lower tax
- Spread gains over years: Instead of selling everything at once, consider staged sales
- Offset with losses: Capital losses can offset capital gains (in the same or future years)
- Consider inside super: CGT rate is 10% in accumulation phase, 0% in pension phase
Deeming vs Actual Income: When It Helps, When It Hurts
The deeming system can work for or against you depending on your actual investment returns:
| Scenario | Impact on You |
|---|---|
| Your investments earn more than deeming rates (e.g., 5-6% dividend yield) | ✓ Beneficial — only deemed income counted, extra returns don't reduce pension |
| Your investments earn less than deeming rates (e.g., 0.5% savings account) | ✗ Unfavourable — you're deemed to earn more than you actually do |
| You hold growth assets with low yields but capital appreciation | ✓ Beneficial — capital gains aren't counted as income for Centrelink |
| You sell assets and hold large cash balances | ✗ Can hurt — cash is deemed at same rates as higher-yielding investments |
Low Interest Rate Trap
When bank interest rates are very low (as they were 2020-2022), the deeming system can seem unfair — you're deemed to earn 0.25%-2.25% when accounts might only pay 0.1%.
However, deeming also protects you when rates rise — your deemed income doesn't increase just because rates go up, unless your balance changes.
Strategic Considerations
Investment Income Planning Questions
1. Am I on the Age Pension (or likely to be)? If yes, deeming affects your income test. Focus on total assets rather than income yield.
2. Where should I hold investments? The inside vs outside super decision has major tax and Centrelink implications.
3. Should I focus on income or growth? For Centrelink purposes, growth assets can be advantageous (capital gains aren't deemed income).
4. Am I maximising franking credits? For low-tax retirees, fully franked Australian shares can provide tax-effective income. See our franking credits guide.
Need Help Optimising Your Investment Income?
Understanding how tax and Centrelink interact with your investments takes careful analysis. Get personalised guidance.
Important Information
This information is general in nature and does not consider your personal circumstances. Deeming rates, tax rules, and Centrelink thresholds change — always verify current rates with Services Australia or the ATO. Data shown is for the 2026-27 financial year unless otherwise selected.
Found an error or have a suggestion? Contact us — we'd love to hear from you.
Last updated: 20 September 2026