The Hon Dan Tehan Minister for Veterans’ Affairs
and
The Hon Kelly O’Dwyer Minister for Revenue & Financial Services
TAXATION TREATMENT OF SUPERANNUATION
INCOME STREAMS
It has been a longstanding feature of the Australian superannuation system that military personnel and military invalidity pensioners are subject to tax on their superannuation income streams. Under the Commonwealth Superannuation Corporation system, payments made before preservation age are treated as income and taxed accordingly.
Before the 2016-17 Budget, some superannuants were using a loophole to reduce their tax obligations on their superannuation income streams by electing to treat their income as a series of lump sum payments. Elsewhere in the tax system similar attempts to reduce tax are not sanctioned and the enabling loopholes are closed.
The Government announced on 3 May 2016 as part of the 2016-17 Budget that this loophole would be closed from 1 July 2017. At this time not one military invalidity pensioner or military personnel was using this loophole.
Only after the Budget announcement was made, a small number of military invalidity pensioners decided to change their arrangements to utilise the loophole, and reduce their tax obligations, prior to its closure.
Since September 2016, around 390 out of 11,800 military invalidity pension recipients have elected to make use of the loophole.
None of the individuals who elected to access the loophole will be subject to any back payment of tax, however they will no longer be able to use the loophole from 1 July 2017.
This change only impacts the way benefits provided by the Commonwealth Superannuation Corporation are treated, not benefits provided by the Department of Veterans’ Affairs.
The Government provides more than $11 billion annually in pensions and services to veterans and their families. This year’s Budget provided a significant increase in funding of $350 million in support of veterans.
The Government is continuing to work with veterans and other interested parties in clarifying this issue.
The Government has offered a briefing to the Opposition on this matter and they have agreed to take up our offer.
The Government greatly values the service of all military personnel and acknowledges the dedication and sacrifices they and their families make every day in order to keep our nation safe.
Media enquiries:
Gerard McManus 0477 391 580 (O’Dwyer)
Amelia Gard 0428 262 894 (Tehan)
Veterans and Veterans Families Counselling Service (VVCS) can be reached 24 hours a day across Australia for crisis support and free and confidential counselling. Phone 1800 011 046 (international: +61 8 8241 45 46). VVCS is a service founded by Vietnam veterans.
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The Commonwealth Superannuation Corporations Mishandling Of Invalidity Benefits
Disabled veterans are being negatively impacted and are suffering because of the systemic mishandling of their disability payment administered by the Commonwealth Superannuation Corporation (CSC).
This mishandling is being compounded by a flow on effect of mishandling by other agencies that are reliant on information provided by the CSC resulting in disabled veterans being forced to live below the poverty line.
The systemic actions of the CSC are causing a great distress on a vulnerable section of the community to the point of contributing to the decline of the veterans mental health during a time of increased veteran suicide.
The Issue
A Veterans Invalidity payment administered by the CSC is essentially the insurance component of their superannuation fund, and is payable to the member upon being medically discharged from the Australian Defence Force due to Invalidity.
The CSC are incorrectly classifying the invalidity payment as a pension (and subsequently an income stream) in direct contravention of the Superannuation Industry Supervision Regulations, resulting from July 1st 2017 in the average invalided veteran paying approximately an extra $500 per fortnight in tax than they are legally required to.
Although the CSC are quick to assure invalided veterans that their payment is in fact a pension, despite hundreds of requests the CSC refuse to provide the legislative basis upon which they maintain this position therefore denying the veteran community due process and natural justice.
We are calling on the Chair of the Commonwealth Superannuation Corporation Mrs Patricia Cross to answer the following question:
Is an invalidity payment paid under either MSBS or DFRDB a pension in accordance with SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS 1994 – REG 1.06 (1) (a) (i),
and if so which standard of SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS 1994 – REG 1.06 subregulation (9A) are they relying on in support of their position.
Only by answering this exact question as asked can the CSC fulfill its model litigant obligations and bring much needed closure to the 9000 plus invalided veterans that are already suffering as a result of service to their country.
It is important to note that the veteran community is not looking for any preferential treatment or changes to any of the existing laws that are currently in place. The veteran community is asking to be treated in accordance with the laws that they swore an oath to protect.
Further information can be obtained from the undersigned.
Shane Walker
Shane Walker
0418113835
[email protected]
I find the continuous spin of calling a valid taxation law a loophole disrespectful, as it infers that there is something underhanded being done by the invalided veterans. I believe that the law was in place for some 20 years, yet CSC did nothing o advice it’s members that this taxation treatment was available to them until it was due to close. This previously no military member took advantage of it. While the Minister’s in there statements single out how many verterans took advantage of the taxation law, no mention of who and how any others used the taxation law in transition to retirement. I’m guessing it was the big end of town.
Finally, the law makes little difference to us as we are being wrongly taxed as an income stream anyway. It will be interesting to see how the government then manoeuvre once this is set right get the invalided veterans to pay a tax that neither the MP’s or our civilian counterparts pay.