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Invalidity Benefits Taxation – Questions Put to the Commonwealth Superannuation Corporation

CSC briefed the DFWA National Executive meeting via teleconference on the 17th of May, regarding the administration of post-September 2007 DFRDB and Military Super invalidity benefits, following the Federal Court decision in Commissioner of Taxation v Douglas.

The brief consisted of the pre-recorded video of CSC Head of Customer Operations, Adam Nettheim, followed by a short question and answer session with the CSC ADF Liaison Officer, David Wilton.

The brief predominantly covered administrative matters relating to withholding schedules and the challenges associated with implementing changes across some 16,000 affected members. These matters have been covered in the video and on the CSC and ATO websites.

DFWA expressed its concern at the delay in implementing the changes, though acknowledged the various technical explanations, and CSC’s undertaking that the necessary administration for correct payments to commence will be implemented by 30 June 2021.

During the question-and-answer session, the DFWA National Executive raised the following concerns:

  • Discrepancies in calculations made by CSC in Douglas.
  • Impact of incorrect income reporting to the Family Court.
  • Ensuring deceased estates are included in remediation processes.
  • Delays in processing doctors’ certificates needed for disability superannuation benefit determinations.

Discrepancies in calculations

During Commissioner of Taxation v Douglas at the Administrative Appeals Tribunal, the ATO requested CSC show its working for the arrears amount reported on Mr Douglas’s PAYG summary.

The calculations provided by CSC revealed it had over-reported Mr Douglas’s income to the ATO by more than $58,000. The over-reporting meant he paid tax on that money—money he never received.

Because Mr Douglas’s lump sum included several years invalidity benefits, and offsets, this over-reporting was not able to be identified from the documents and determinations provided to him by CSC. It took the Australian Government Solicitor to request CSC to explain the amounts reported to the ATO—and for the existence of the discrepancy to even be identified! CSC did not provide any explanation for the difference.

The reply of the CSC … was, with all due respect, singularly unhelpful, offering no details as to how it had come to specify [the incorrect amount] as the amount of the arrears payment

Justice Logan, Commissioner of Taxation v Douglas [2020] AATA 494

DFWA identified this as a key concern to CSC in early-May and requested an explanation as to how such a discrepancy occurred, how wide-spread the issue is, and what members can do to ensure they are not affected.

According to CSC, this was a one-off occurrence, however, no further detail to substantiate this claim was provided.

DFWA does not accept that such a response is reasonable. This raises valid concerns regarding quality control and the way in which determinations and calculations are communicated to members. We remain concerned that such unexplained and currently unidentified discrepancies may be more wide-spread and on-going.

Impact on Family Court decisions

DFWA requested CSC advise if they intended to change their practice regarding reporting Invalidity Benefits to the Family Court.

CSC has previously reported on Form 6 to the Family Court that the Invalidity Benefit was a defined benefit interest which led to its being valued as if it was guaranteed for life. The Federal Court decision confirmed that Invalidity Benefits commencing on and after 20 September 2007 are superannuation lump sums and are reviewable and are not guaranteed for life.

DFWA requested advice on what CSC is intending in future reporting and if it is intended to address previous apparent incorrect reporting.

DFWA is awaiting advice from CSC on this matter.

Deceased estates

There will be several veterans who would have been affected by the Federal Court decision but who have died since 20 September 2007.

Executors of deceased estates are required to settle tax issues with the ATO within certain time limits. DFWA requested CSC advise what CSC and the ATO were doing regarding notifying the estates of deceased veterans whose invalidity benefits would have been affected by the Federal Court decision.

DFWA is awaiting advice from CSC on this matter.

Delays in processing Doctors’ certificates

Members may qualify for their invalidity benefits to be classed as disability superannuation benefits and receive substantial concessions as a result. For many veterans, this will have the greatest effect on the invalidity benefits they receive.

Members need to provide two properly worded doctors certificates to CSC, to have the appropriate determination made. This process is adequately covered on both the CSC and ATO websites.

Certificates should be forwarded to CSC at invaliditytaxation@csc.gov.au. Be sure to include your full name and date of birth, and member number if known.

The ATO has advised affected members to have CSC make a disability superannuation benefit determination prior to applying to the ATO for the streamlined approach.

Members have reported significant delays in processing of disability superannuation benefit determinations by CSC. Some members have submitted certificates as early as February and have not yet been processed. CSC are advising members there is a 10-15 working day delay.

DFWA has expressed concern this delay will result in members being unable to opt-in to the ATO’s streamlined process and will be further disadvantaged by subsequent delays in amending tax returns.

Further issues

Separately, DFWA is pursuing other issues, including the applicability of the decisions to ADF Cover invalidity benefit recipients.

For more information read the main article Veteran Invalidity Benefit Taxation here.