How are the pension payments taxed in the hands of the recipient pensioner?

Where the pensioner is aged 55-59 then the gross pension amount less the tax free component of the pension payment is assessable as normal income and subject to tax at the pensioner’s marginal tax rate plus the Medicare levy.  These pension payments are (like salary or wages) subject to income tax, although the application of the 15% tax offset reduces the amount of tax payable.

That is, the taxable component of a pension payment attracts a 15% rebate (also known as an offset).  For example, the maximum amount of tax that will apply to the taxable component of the ABP payment for a pensioner on a 30% tax rate is reduced to 15%.  Note that the pension rebate does not result in a refund if tax is payable at less than a 15% rate  (and the pension rebate is only applicable for pensioners aged 55 to 59.)

However, if the pensioner is aged 60 or over, the entire pension is received tax free and is not required to be included in the pensioner’s personal income tax return.