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Update on DFRDB and MSBS Invalidity Benefits Taxation Case

ATO Summary of Court Decision

The ATO have issued an impact statement and summary of the Court decision regarding taxation of MSBS and DFRDB Invalidity Benefits, i.e. Class A and Class B invalidity pensions. Read the impact statement here.

Action being taken by the ATO and CSC

The ATO advised that they are working together to develop a streamlined process to implement the decision of the Federal Court. Read the ATO announcement here.

Who is affected?

DFRDB and MSBS veterans who are receiving or who have received a Class A or Class B Invalidity Benefit pensions which started on or after 20 September 2007, may be affected by the recent court decisions, i.e. have the payments taxed as superannuation lump sums rather than superannuation income streams. This generally will reduce taxation and will be backdated several years.

If you are receiving or have received Class A or Class B pension provided under DFRDB or MSBS which started before 20 September 2007 and continued without interruption of payments over that date, you are not affected and your pension payments will continue to be taxed as before as a superannuation income stream benefit.

If your pension started on or after 20 September 2007 but was backdated  to before that date due retrospective medical discharge or retrospective reclassification from a Class C to Class A or B, you are likely to be affected by the Court decision, i.e. have the payments taxed as superannuation lump sums.

Read the ATO’s advice on how to work out if you are affected here.

CSC Action

CSC advise that it take time to change the systems to change the withholding tax currently deducted from veteran pension payments. They will advise the ATO in the statement of payments issued at end of this financial year that all previous payments should have been classified as superannuation lump sums. The ATO will apply the right tax to veterans’ tax returns and return excess tax as a refund. 

Read the CSC statement here.

Further Action

There are still many questions concerning the applicability and implementation of the Court’s decision that have not been addressed. Some of these are outlined in the latest edition of the DFWA magazine “Camaraderie” Vol 52 No. 1. DFWA is pursuing answers to these from the appropriate authorities.

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