Time to Breach the Silos! – Treatment of military invalidity benefits following Commissioner of Taxation v Douglas (2020) FCAFC 220

Below is a comment from Liz Cosson, Secretary DVA, regarding this recent Full Federal Court decision. The decision does not affect any DVA payments as such, but it highlights a broader concern that DFWA has with the connectivity between the various government agencies that impact of veterans and their families.

I recommend that you read the DVA comment then the DFWA concerns that follow.

Dear Members (ESORT)

I am writing to you about the outcomes of the recent Full Federal Court decision in the case of Commissioner of Taxation v Douglas [2020] FCAFC 220.  I understand you were briefed on this by the Commonwealth Superannuation Corporation (CSC) prior to the last ESORT meeting on 10 May 2021. 

This decision affects veterans who are members of the Defence Force Retirement and Death Benefits (DFRDB) Scheme and the Military Superannuation Benefits Scheme (MSBS) who received military invalidity benefits that commenced on or after 20 September 2007.  These payments will now be taxed as superannuation lump sums and not as superannuation income stream benefits.  

The ATO has commenced a remediation program to correct the income tax treatment of these payments retrospectively.  Further information on this can be found here: https://www.ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-using-your-super/Treatment-of-military-invalidity-benefits-following-Federal-Court-decision/

The Commonwealth Superannuation Corporation (CSC) will be applying new tax withholding rates, as provided by the Australian Taxation Office (ATO), to fortnightly invalidity pensions.  This requires further work between the agencies and changes to CSC’s pension payment system prior to the tax rate being varied.   Further information on this can be found here: www.csc.gov.au/retirement/pensioners/tax-changes-to-invalidity-pensions/militarysuper/

It is important to note that DVA payments are not impacted by these changes.  

Regards

Liz Cosson AM CSC
SecretaryDepartment of Veterans’ Affairs

DFWA Concerns.

Although the Secretary’s message is about the impact of the Douglas decision on DVA payments, it is an excellent example of how veterans who receive income support after leaving the ADF, must interact with multiple separate government agencies. That is without considering Services Australia, which further complicates matters.

It is evident that while much work is underway in improving the Transition process that veterans must navigate prior to and after discharge there is one major roadblock. In simple terms that roadblock is ‘Silos’. Government departments and even agencies within departments work in silos. This may be forgiven to a point as they are bound by both legislations and regulations, but they should not be left to impact poorly on veterans and their families.

Despite the limitations imposed by legislation and regulation, DFWA demands that the silos be breached. This comment in the recent edition of Camaraderie (p.11) highlights DFWA concerns:  

 While ATO advise they are working with CSC to have a “streamlined service”, there is no mention of DVA. If a veteran has also been receiving Incapacity payments from DVA, these are offset against any Invalidity Payments received from CSC – veterans cannot receive two payments for the same condition. This results in complex and lengthy calculations, as those DVA payments over the years must be subtracted from the Lump Sum to be paid by CSC for the same period. There have been large on-going problems in this area. Recent history regarding calculations of payments by CSC and DVA have not been encouraging.  • What is CSC doing to ensure that the mistakes highlighted by Justice Logan in his Douglas decision, do not occur again? • Has DVA engaged with CSC to ascertain if there is a need to review offset calculations regarding Incapacity Payments?

The DFWA will continue to press DVA, the CSC, the ATO and the Joint Transition Authority (JTA) to break down the silos they presently self-limit in or that are imposed by legislation and regulation.  

 Justice Logan, in handing down his decision, made it clear that it is the veteran that should be central in the processes, not the silo that departments and agencies limit themselves to.

Kel Ryan

National President

Defence Force Welfare Association
Defence Force Welfare Association
Phone  02 6265 9530 | Mobile  0418 759 120
PO Box 4166   KINGSTON  ACT   2604

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