ADF Superannuation

MILITARY SUPERANNUATION INVALIDITY TAX ISSUE

Update 12 September 2017: Many veterans will be more than aware that among the taxation changes that came into effect on 1 July 2017, one particular one seemed to affect veterans receiving DFRDB/MSBS Invalidity Pensions.  That was because of the repeal of the 'Income Tax Assessment Regulations 1997 – Reg 995.1.03’.  The core issue appeared to be that ComSuper was incorrectly classifying an invalidity payment as a pension (and subsequently an income stream). This seems to be in direct contravention of the Superannuation Industry Supervision Regulations.

This incongruous issue was taken up by DFWA with the Minister for Veterans’ Affairs, who referred the matter directly to the Australian Tax Office (ATO). The ATO’s letter in reply can be accessed here.  We are not aware of any veteran who may have taken advantage of the so-to-speak loophole before the said 'Income Tax Assessment Regulations’ repealed. What the ATO suggests is that fewer than 400 veterans had used the loophole and only started doing so following the announcement that it would be shut down.

Update 10 July -   National President of DFWA David Jamison was interviewed on ABC Brisbane radio last Friday on the topical issue of tax and the way the ATO are treating veterans invalidity payments. Ray Martin in Townsville was separately interviewed as well. Both interviews are available in links hereunder and worth a listen:

(1) ABC Radio interview of David Jamison (DFWA) by Steve Austin.  This ABC Brisbane Radio 612 4QR’s Steve Austin interview of David Jamison (DFWA) today (Friday 7th July) continues on from yesterday’s program. Expectantly DVA Minister Dan Tehan calls in endeavoring to explain the matter. The upshot is that CSC must still explain the basis on which it has been (incorrectly) reporting invalidity super payments as pensions. CSC should provide detailed answers (with the legal basis explained) to the following:

  • 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 sub regulation (9A) applies to the payment.

This is a must listen to radio broadcast.  Steve Austin’s introduction start at 15:35minutes.  David Jamison commences at 18:26 minutes to end at 29:39 minutes.  Dan Tehan commences at 37:16 minutes and ends at 47:01 minutes:

(2) ABC Radio Interview Of Col Ray Martin (Ret’d) By Steve Austin. This ABC Brisbane Radio 612 4QR’s Steve Austin interview of Col Ray Martin (Retd) (past CO 1 RAR) highlighted the issue. listen to radio broadcast here. Following the interview five callers affected by the Tax legislation explain the facts of the matter and the impact on their lives.

Update 4 July   DFWA has issued a short information sheet on this matter.

Update 3 July  The background to this issue was reported below. Channel 7 TV News last night (2nd July) reported that Veterans take on the Turnbull Government over changes to the way it taxes Comsuper Invalidity payments:

https://www.facebook.com/TimLester7News/videos/1682506212057601/

David Jamison, National President of the DFWA, stated that ‘Although it appears this change for veterans is an unintended consequence of a much broader taxation change, the veterans community as a whole considered it (if true) manifestly unfair. We all have the obligation to support our effected invalided veterans. We have asked the Government to ensure they will not be hit with higher taxes post 1 July 2017’. 

DFWA is continuing to consult with the DVA Minister Dan Tehan on the issue.

Update 27 June 2017: The Government’s REPEAL OF THE INCOME TAX ASSESSMENT REGULATIONS 1997 – REG 995.1.03, effective from 1st July 2017 will see many veterans in receipt of Invalidity Benefits paid from Military Superannuation set to lose many $100’s to over a $1000 a month. (NOTE - DVA Invalidity Payments are NOT caught in this change.)

This legislation allowed the compensatory nature of these benefits to be acknowledged and a lower rate of tax applied to these payments. This repeal removes that recognition and some Injured Ex ADF members will now lose large sums of money that actually allows them and their families to survive. For them this money means being able to pay their rent or mortgage, feed and clothe their children and have a reasonable (not extravagant) standard of living.

It is believed that neither of these payments meet the definition of a pension in Regulation 1.06 of the Superannuation Industry Supervision (SIS) Act, as required in the Tax Act. Comsuper refuses to answer the question on what basis are the Invalidity Benefits they administer (under DFRDB or MSBS), considered as a pension as defined in Regulation 1.06 of the SIS Regulations. Comsuper is bound to comply with the SIS Act to remain a complying superannuation fund. If veterans payments are treated in accordance with the relevant existing legislation, this looming crisis will be averted.

DFWA is making representations direct to the Government and the Parliament. 

Please consider signing a petition to the Australian House of Representatives (petition EN0242) ...THE PETITION DOES NOT SEEK REPEAL OF THIS INCOMING LEGISLATION BUT REQUESTS THE RELEVANT MINISTER LOOK INTO THE TAXATION TREATMENT OF DFRDB AND MSBS INVALIDITY PAYMENTSAND CORRECT ITS UNINTENDED CONSEQENCE.

Also ...consider joining the following Facebook Group for further information on this and other related matters: COMSUPER - MILITARY ENTITLEMENTS

 

THE SUPERANNUATION CHANGES FROM 1 JULY 2017 - The Fair and Sustainable Superannuation Act 2016

DFWA is seeking urgent advice to clarify some issues with the  Fair and Sustainable Superannuation Act 2016  and how the provisions are being applied to a typical unfunded untaxed DRFDB (Defined Benefits [DB]) superannuation. This superannuation income stream is fully taxed in the recipient’s hand, albeit with a 10% discount if the recipient is over 60 years of age. Yet the Commonwealth Superannuation Corporation (CSC) is including the gross amount in the calculations toward the $1.6m Transfer Balance Cap (TBC).  To any reasonable person, this seems blatantly unfair when compared to a person with a funded DB scheme; their gross and net are the same.

The intent of the Act is to impose a $1.6 million Cap on the amount of capital that can be transferred to the tax-free earnings retirement phase of superannuation – details of the Act are here.  http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5760

The impact of CSC’s decision is that:

  • If a person’s CSC calculated contribution to the TBC, and their accumulation funds in the retirement phase reaches $1.6M or more, with the CSC’s calculation the members TBC will remain as $1.6M. But the amount of capital available to generate tax free earnings in the retirement phase of superannuation will be reduced by the tax paid times 16, thereby leaving less than $1.6M of assets to generate tax free earnings. This certainly cannot be the intent of the Act.  For a retired long serving mid ranked officer paying $10k tax a year on his DFRDB pension this will reduce his capital by $160K and his tax free income in retirement by $8K ($160K x 5%, the accumulation fund in the pension phase draw down rate if over 65).
  • Potentially, with this inflated figure, if the recipient exceeds the $1.6M TBC, they will have to withdraw funds from the accumulation superannuation account in the retirement phase, as the funds attached to the DFRDB unfunded untaxed DB scheme are notional and cannot be accessed, thereby reducing the tax free retirement income by thousands of dollars.  This is not an insignificant reduction, rather a major hit to a veterans’ bottom line.
  • One of our DFWA Members has been corresponding with the CSC asking why the gross DFRDB pension was being used. CSC's response was "that was their understanding" of the requirements of the ATO and Department of Finance.  When CSC was asked for specific authorities and rules of the Act that lead to this “understanding”, CSC have been less than forthcoming.  CSC have also advised in an e-mail as late as 3 March 2017 that they are still liaising with regards to the changes and will provide updates as further information is confirmed. 

We request that Government determine the following and advise:

  • Why is a gross pension being used to calculate the amount that is to be in included in the Transfer Balance Cap, for an unfunded DFRDB figure?
  • Where is the authority for this action other than CSC’s “understanding”?
  • Why is an unfunded, therefore fully taxed, retirement stream from DFRDB even included in the TBC calculations, where Section 302-2 (1) (b) of the Act seems to indicate, "the sum of all of those benefits (other than elements untaxed in the fund benefits) exceeds... "
  • Why are funded and unfunded DB schemes treated the same under the Act?  The issue relates to the fact that in funded schemes the pension is received tax free, and for unfunded schemes the pension is fully taxed at marginal rates with the 10% discount for those over the age of 60.   Any calculations using gross figures will significantly disadvantage Members of unfunded schemes.
  • We also seek advice on behalf of the War Widows League and the Partners of Veterans Association as to how Reversionary Pensions, being received by a spouse/partner of a deceased Member who was part of a DFRDB scheme, will be treated.
  • Do the rules of the Act apply to all superannuants, as we have heard that pre 2004 Politicians and Judges’ schemes will not be affected by the Act?

The Act is to be implemented on 1 July 2017 and there are still many questions in regard to its application, therefore a prompt response has been requested to enable DFRDB superannuants to take action to adjust their superannuation if required.

ADF SUPER

The new ADF Superannuation arrangements commenced on 1 July 2016.  DFWA was instrumental in lobbying for a change to the Governments original proposal for a two tiered Government contribution arrangement, to an increased contribution rate of 16.4% of salary plus all but “expense related” allowances for all ADF members regardless of their operational status. DFWA also worked to ensure ADF Cover was at least equivalent to the provisions in the MSBS scheme.

ADF MEMBERS / MILITARY SUPERANNUANTS

.. do you have any concerns or interest about Comsuper and the whole messy way military superannuation - your superannuation - is managed ?  You are invited to join a Facebook Group to learn more about a matter that affects us all.  Check out and join COMSUPER - MILITARY ENTITLEMENTS https://www.facebook.com/groups/1098180903529690/

Links to past related documents are shown below:

286 Update - January February 2014
PDF
ADF Super Position Paper 19Feb15
DFWA Position Paper on the proposed Military Superannuation Scheme, ADF Super
PDF
ADSO MEDIA STATEMENT 24 MAY 2016
It's Time to Stump up for our Service Men and Women, and Veterans
PDF
Vol 46 No 2
Camaraderie Vol 46 No 2 July 2015
PDF