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ADF Cover Invalidity Benefit Taxation

Invalidity Benefits are available to those ADF members who are discharged from the Defence Force on medical grounds.

Invalidity Benefit cover for currently serving ADF members is provided by either DFRDB, MSBS or ADF Cover. DFRDB closed to new members on 1 July 1991, and MSBS closed to new members on 1 July 2016. All members entering the ADF after 1 July 2016 have invalidity benefit cover under ADF Cover.

ADF members who are about the same age, have the same length of service, receive the same pay, and are discharged for the same medical condition, receive approximately the same Invalidity Benefit regardless of whether they are in MSBS or ADF Cover.

While the Invalidity Benefits are the same, the tax is very different.

In a typical scenario, two veterans each receive an Invalidity Benefit of $2,000 per fortnight:

  • One veteran receives their Invalidity Benefit from MSBS and pays around $10 in tax.
  • The other veteran receives their Invalidity Benefit from ADF Cover and pays around $250 in tax.

The veteran receiving ADF Cover Invalidity Benefits pays about $6,500 more tax each year.

If the veteran dies, the same inequity of tax treatment persists for the reversionary pensions for the surviving spouse or child.

Invalidity Benefits are not “pensions for life” and are subject to periodic review by CSC up to retirement age. As a result, Invalidity Benefits from MSBS and ADF Cover can be reduced, cancelled completely or increased.

The intent of governments has been to provide similar superannuation related Invalidity Benefits for medically discharged veterans regardless of the superannuation scheme they were covered by – so that veterans are treated equitably. Now, due to the complexity of military superannuation and tax legislation, that equitable treatment has been destroyed.

ADF Cover Invalidity Benefits should be taxed the same way and MSBS and DFRDB Invalidity Benefits.

It’s only fair.