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Veterans’ interests safeguarded by Federal Court ruling

In a significant win for veterans across the country, the federal government has taken action to ensure no veteran will be made worse off due to a Federal Court decision.

The court’s decision in Commissioner of Taxation v. Douglas (the Douglas decision) had meant that invalidity pensions paid under the Military Superannuation and Benefits (MSB) and Defence Force Retirement and Death Benefits (DFRDB) schemes that commenced after 20 September 2007 would be taxed as superannuation lump sums rather than superannuation income stream benefits.

According to Assistant Treasurer Michael Sukkar, without a swift response from the Australian government, the Douglas decision would have had potentially harmful financial implications for some veterans.

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“The court’s decision had meant that invalidity pensions paid under certain superannuation schemes would be taxed differently,” Assistant Minister Sukkar said.

“By developing legislation to ensure these benefits are again treated as income streams rather than lump sums for tax purposes, we are removing the impact on adversely affected veterans while also preserving the better tax outcome for veterans who welcomed the Douglas decision.”

Minister for Veterans’ Affairs and Defence Personnel Andrew Gee added that the Australian government was putting veterans first.

“Almost 6,800 veterans would have had more tax withheld from their pension payments as a result of this court decision, meaning less money in their pockets every fortnight. In some cases this was up to $100 per fortnight, and that was unacceptable to me,” Minister Gee said.

“Thousands of veterans were also facing the prospect of being hit with a notice for back-taxes going back to 2017. It would have devastated so many vulnerable veterans.

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“These veterans on invalidity pensions have given Australia their best. Having their pensions cut and then slugging them with back taxes would have been unconscionable.”

To preserve the preferential tax outcome for veterans impacted positively by the decision, the Australian Government will create a new non‑refundable tax offset for recipients of invalidity pensions paid from the impacted schemes.

The offset will ensure that, notwithstanding the change in tax treatment, veterans who would be better off in a particular income year if the invalidity pension were still treated as lump sums would retain that tax benefit. In effect, whichever tax treatment provides the better tax outcome would apply to each affected veteran.

Going forward, invalidity pension recipients who would have been positively affected by the Douglas decision will automatically receive the tax offset on lodgement of their tax returns.

No affected veteran will see reduced fortnightly payments as a result of the Douglas decision, and the offset will be incorporated into the fortnightly Pay-As-You-Go withholding system.

The changes will apply retrospectively, which will mean that those who were positively affected will continue to receive any tax benefit following the application of the court decision to historic tax payments, while preventing any tax increases for others.

The Australian government will continue to engage with affected benefit recipients in the course of delivering this legislation, and is committed to delivering a fair outcome for veterans.

According to Minister Gee, this financial storm for veterans has been brewing since December 2020.

"Decisive action needed to be taken to address it and that is what I have done,” he said.

“I’d like to acknowledge the Coalition Backbench Committee, chaired by the member for Fisher Andrew Wallace, for their work on this vitally important issue.

“Making life better for our veterans, and ensuring they get the support and care that they need and deserve is my top priority. That includes making sure that veterans will not pay higher taxes on their invalidity pension.”

In a significant win for veterans across the country, the federal government has taken action to ensure no veteran will be made worse off due to a Federal Court decision.

The court’s decision in Commissioner of Taxation v. Douglas (the Douglas decision) had meant that invalidity pensions paid under the Military Superannuation and Benefits (MSB) and Defence Force Retirement and Death Benefits (DFRDB) schemes that commenced after 20 September 2007 would be taxed as superannuation lump sums rather than superannuation income stream benefits.

According to Assistant Treasurer Michael Sukkar, without a swift response from the Australian government, the Douglas decision would have had potentially harmful financial implications for some veterans.

“The court’s decision had meant that invalidity pensions paid under certain superannuation schemes would be taxed differently,” Assistant Minister Sukkar said.

“By developing legislation to ensure these benefits are again treated as income streams rather than lump sums for tax purposes, we are removing the impact on adversely affected veterans while also preserving the better tax outcome for veterans who welcomed the Douglas decision.”

Minister for Veterans’ Affairs and Defence Personnel Andrew Gee added that the Australian government was putting veterans first.

“Almost 6,800 veterans would have had more tax withheld from their pension payments as a result of this court decision, meaning less money in their pockets every fortnight. In some cases this was up to $100 per fortnight, and that was unacceptable to me,” Minister Gee said.

“Thousands of veterans were also facing the prospect of being hit with a notice for back-taxes going back to 2017. It would have devastated so many vulnerable veterans.

“These veterans on invalidity pensions have given Australia their best. Having their pensions cut and then slugging them with back taxes would have been unconscionable.”

To preserve the preferential tax outcome for veterans impacted positively by the decision, the Australian Government will create a new non‑refundable tax offset for recipients of invalidity pensions paid from the impacted schemes.

The offset will ensure that, notwithstanding the change in tax treatment, veterans who would be better off in a particular income year if the invalidity pension were still treated as lump sums would retain that tax benefit. In effect, whichever tax treatment provides the better tax outcome would apply to each affected veteran.

Going forward, invalidity pension recipients who would have been positively affected by the Douglas decision will automatically receive the tax offset on lodgement of their tax returns.

No affected veteran will see reduced fortnightly payments as a result of the Douglas decision, and the offset will be incorporated into the fortnightly Pay-As-You-Go withholding system.

The changes will apply retrospectively, which will mean that those who were positively affected will continue to receive any tax benefit following the application of the court decision to historic tax payments, while preventing any tax increases for others.

The Australian government will continue to engage with affected benefit recipients in the course of delivering this legislation, and is committed to delivering a fair outcome for veterans.

According to Minister Gee, this financial storm for veterans has been brewing since December 2020.

"Decisive action needed to be taken to address it and that is what I have done,” he said.

“I’d like to acknowledge the Coalition Backbench Committee, chaired by the member for Fisher Andrew Wallace, for their work on this vitally important issue.

“Making life better for our veterans, and ensuring they get the support and care that they need and deserve is my top priority. That includes making sure that veterans will not pay higher taxes on their invalidity pension.”

Nastasha Tupas

Nastasha Tupas

Journalist – Defence and Security, Momentum Media

Nastasha is a Journalist at Momentum Media, she reports extensively across veterans affairs, cyber security and geopolitics in the Indo-Pacific. Previously, she was a Content Producer at Verizon Media, a Digital Producer for Yahoo! and Channel 7, a Digital Journalist at Sky News Australia, as well as a Website Manager and Digital Producer at SBS Australia. She started her career in media as a Video Producer and Digital News Presenter at News Corp Australia.

Veterans’ interests safeguarded by Federal Court ruling
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