VETERANS INVALIDITY PAYMENTS AND THE ATO

VETERANS’ CSC INVALIDITY PAYMENTS AND THE ATO

(LAST UPDATE 07 JULY 2020)

This item traces developments of the Veteran challenge regarding the taxation of DFRDB and MSBS Invalidity Benefits (Class A and B) by the ATO. This item is periodically updated from the latest developments as published in “Current News” on the DFWA Home Page.

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Brief Overview of what this about and what has happened.

More Detail

How Civilians are treated compared with Veterans

What the Veterans Wanted

Delaying Tactics by CSC and ATO to Avoid Addressing the Veterans’ Objections

The Start of the Legal Process to Decide the Matter

Fatal Flaw in the ATO Argument

Government Changes the Law in Middle of AAT Hearings Because They Were Losing

Misleading Statements to Parliament and Attempts to Stop the Law Change

The AAT Decides in Favour of the Veterans

The ATO Appeals to the Federal Court

ATO Advice to Veterans Not To Object

DFWA Advice to Veterans to Exercise their Legal Right to Object

Thanks to the Three Veterans and the Legal Teams Fighting For Other Veterans

Final Words of Justice Logan Concerning Veteran Treatment

Endnotes with Links to AAT Decisions and Referenced Documents

 

BRIEF OVERVIEW

Veterans compulsorily discharged from the ADF on medical grounds, may receive invalidity benefit payments from the Commonwealth Superannuation Corporation (CSC) which manages the five separate military superannuation and disability insurance schemes.

The disability superannuation benefits associated with civilian superannuation and paid to those unable to work are not reviewable after a few years and are paid for life or as a lump sum at a reduced tax rate. The invalidity benefits paid to veterans are reviewable (can reduce to zero) to age 55, are not lifetime pensions and are taxed as a “superannuation income stream” at the veteran’s marginal rate. Veterans lodged objections.

The Superannuation Industry (Supervision) Regulations (SISR) 1994 Reg1.06 defines criteria to determine if the benefits are a superannuation income stream and therefore taxable at the Veteran’s marginal rate or are they a disability superannuation benefit and therefore taxable at a reduced rate?” From 2015, the ATO and CSC avoided responding to objections and answering the Veterans’ question regarding which criteria of the SISR was being applied to them. Finally, in August 2017, three veterans were able to pursue their objections against the ATO decisions as a matter of public interest under Test Case Litigation Funding arrangements.

Administrative Appeals Tribunal Brisbane (2018 – 2020)

In May 2018, the hearings at the Administrative Appeals Tribunal (AAT) commenced. The oral arguments were coming to an end in early June and it was apparent that the ATO legal argument was flawed. The ATO requested an adjournment to 12 December to consult. The ATO then arranged for the Tax regulations applying to the case to be changed and backdated to fix their case. The explanation to the regulation changes tabled in Parliament by the Minister on 7 December 2018, were misleading. The Hearing on 12 December was adjourned again and representations were made to the Minister responsible. However, the election intervened and, in spite of intensive lobbying by DFWA, the regulation changes became law. The law change affected the arguments in the case and caused considerable delay to the AAT decision.

Outcome (Mar – May 2020)

In March 2020, Justice Logan handed down decisions in the three cases and over-ruled the ATO assessments. The decision upheld that the Invalidity Benefits should be treated as disability superannuation benefits and taxed accordingly in the future. Further, some previous returns were to be re-assessed. In April, the ATO lodged appeals against the three decisions.

The ATO has since advised veterans receiving Invalidity Benefits not to lodge objections based on the AAT  decision and to complete FY2019/20 Tax Returns declaring the Invalidity Benefits as a superannuation income stream and not a superannuation disability benefit as decided by the AAT. The ATO has stated they will not change their view or taxation practices until the appeal process is finalised. The ATO maintains Veterans will not lose any rights by not objecting.

DFWA has advised recipients of invalidity benefits to seek professional tax advice and to exercise their full taxpayer rights and submit their returns in accordance with the AAT decision and to lodge objections as is their right.

Future

The ATO appeals will be heard by a Full Bench of the Federal Court, probably in the November 2020 sittings, meaning a possible decision by March-July 2021. It is likely that the losing side at the Federal Court will seek leave to appeal to the High Court with a possible decision by early 2022.

 

THE FULL ACCOUNT

THE BASIC FACTS

Veterans medically discharged from the ADF, including those with mental wounds and at risk of self-harm, may receive Invalidity Benefit payments from the Commonwealth Superannuation Corporation (CSC) which manages the five separate military superannuation and invalidity insurance schemes:

  • The Defence Force Retirement Benefits (DFRB) scheme (1948-1972),
  • The Defence Force Retirement and Death Benefits (DFRDB) scheme (1972-1991),
  • The Military Superannuation and Benefits Scheme (MSBS) (1991-2016),
  • ADF Super (2016-), and
  • ADF Cover (2016-).

DIFFERENT TREATMENT – CIVILAN AND VETERAN DISABILITY BENEFITS

Civilian Equivalent Disability Benefit. These benefits are like those of Total and Permanent Disability (TPD) and employment insurance policies offered with civilian superannuation schemes and paid for by employees. This type of insurance is provided as part of military superannuation package[i] because the cost of such insurance from civilian insurance companies would be high due to the risks of the ADF profession, and consequently be unaffordable for ADF personnel. Generally, the benefits from civilian insurances are reviewable until the condition stabilises and then benefits become permanent. They are treated as a super fund disability benefit. They can be paid as one lump sum or as a pension. They are not compensation payments for incapacity due to a work-related cause, as provided by Worker Compensation insurance, e.g. Work Cover, taken out by Employers or as provided by the Department of Veteran Affairs for ADF personnel.

Veteran Disability Benefit.  The veteran superannuation Invalidity Benefit Class A and B payments are reviewable up to age 55 years and can go up and down between a Class A (about 70% of previous salary), Class B (half Class A) and Class C (0%). They are not lifetime pensions. In fact, CSC advises this when asked by financial institutions if the veteran seeks a mortgage or other secured loan. The threat of a possible loss on income to an invalid veteran makes financial planning difficult, acts as a disincentive to rehabilitate (even if medically possible) and is a source on on-going stress. The Australian Tax Office (ATO) taxes the Invalidity Benefit payments as ordinary income treating the payments as a non-variable lifetime “Superannuation Income Stream Benefit” rather than as a super fund disability benefit which can attract a lower tax rate.  

The Veterans’ Question (2015-2016)

The Superannuation Industry (Supervision) Regulations (SISR) 1994 Reg1.06 defines criteria to determine the legal nature of payments. If the payments do not meet any the criteria as a Superannuation Income Stream Benefit, by default, they can end up being classed as lump sum disability benefits.

Veterans could not find any criteria where their Invalidity Benefits could be classed as a Superannuation Income Stream Benefit and therefore sought to have their income treated the same way as reviewable disability superannuation benefits paid to civilians. For over 5 years, Veterans have requested CSC and the ATO to answer the question, “Which specific criteria in SISR 1.06 are being applied to define our payments?” 

It is a basic right of all Australians to know what law is being applied to their situation.

 

Delaying Tactics - ATO Breach of Taxpayers Charter and Model Litigant Principles

Both CSC and ATO have used every dodgy practice in the book to avoid answering this question.  At times, each claimed the other was responsible for the decision. Since 2015, Private Ruling requests (requiring answers within 28 days) were unanswered for over 18 months. Then ATO bureaucrats encouraged the Veterans to change their Private Ruling requests and utilize a different mechanism in law to reduce tax. Veterans did this and thereby cancelled their original Private Ruling requests on SISR 1.06. The ATO bureaucrats deliberately (Freedom of Information) and callously did not inform the Veterans that the offered mechanism was regarded as a loophole and had already been legislated to close and the extra cash would cease. Some Veterans and their families suffered from financial over-commitment because of this deception. In response to a Senate Estimates hearing question on notice, faceless bureaucrats even got away with a classic “Yes Minister “answer, stating each case was different and they could not therefore answer generally, other than say that the criteria of SIS Reg 1.06 was met in each case. Yet, the ATO was refusing to answer that question from individual veterans for their own case.

Under the Taxpayers Charter and Model Litigant Principles, the ATO is required to behave fairly and ethically in its treatment of taxpayers and not create unnecessary delays. It hasn’t in this case.

Start of the Legal Process - A Chance for the Rule of Law (2017 - 2018)

Because of the hardship caused by the ATO not informing veterans that the recommended mechanism was closing, there was a loud media campaign, where the Minister for Revenue and Financial Services claimed the veterans were trying to use a loophole that taxpayers had been told was closing. While technically it was true that veterans were using a loophole, they did not know it was that when they were induced to use it by the ATO. In the end, two things occurred:

  1. The Minister for Revenue and Financial Services finally admitted (5 Aug 2017) that  “…. information was provided regarding the potential accessibility of a loophole. This information was provided without referencing the fact that …. the loophole would be closed effective 1 Jul 2017.
  2. In August 2017, three veterans were offered Test Case Litigation Funding to pursue their appeals against the ATO decisions on their taxation.

This means that final decisions on these cases would set a precedent for all other recipients of Class A and B Invalidity Benefits paid by military superannuation schemes. The three cases are:

  • Wayne Douglas vs Commissioner of Taxation. Brisbane AAT 2016/6964 and 6965. 13 March 2020. (DFRDB: Incorrect taxation yearly and of lump sum back- payments in Retrospective Medical Discharge.)
  • Peter Burns vs Commissioner of Taxation. Brisbane AAT  2017/1647-1549 and 2017/1663. 25 March 2020. (MSBS pre-2004: Incorrect yearly taxation.)
  • GDGR vs Commissioner of Taxation. Brisbane AAT 2017/2105-2108 and 2017/4218-4223. 30 March 2020. ((MSBS post-2004: Incorrect yearly taxation.) Closed Hearing.                                                                                   

Fatal Flaw in the ATO Case - Administrative Appeals Tribunal Brisbane (2018)

In May/Jun 2018, the hearings at the Administrative Appeals Tribunal (AAT) commenced. On 1 June 2018, one of the points that the ATO was arguing to counter the veteran case developed what was described by Justice Logan as a “fatal flaw”. The ATO Senior Counsel agreed and requested a lengthy adjournment to assess the possible wide implications of the flaw.  Justice Logan reluctantly granted an adjournment until 12 December 2018 and stated he was concerned that the ATO may attempt to introduce retrospective changes to the law to overcome the legal flaw in this aspect of the ATO argument.

Changing the Law - The ATO Bureaucrats Strike Again (2018)

Emails obtained under Freedom of Information (FOI), show that the bureaucrats of ATO and Treasury immediately started working on a legislative fix to the flaw in the legal argument the ATO had raised at the AAT hearings. On 7 December 2018, the Assistant Treasurer issued a Media Statement announcing several changes to taxation related Regulations. Usually, retrospective changes to Regulations come into effect from the date of tabling in Parliament, but do not adversely affect the accrued rights of citizens, especially those in middle of a hearing.

After a defined period, the Regulation changes become law unless either House of parliament passes a Disallowance Motion. 

In this case, the Australian Government Solicitor (AGS) and the ATO advised the Veterans that the changes, backdated to 2007, would affect their cases before the AAT. 

Observation.  The action taken is similar to a losing side in a football match, having the ability to change the rules of the game, in the middle of the game, so that a disallowed goal of the losing side, suddenly becomes  a legal goal.

Misleading Statements Presented to Parliament

The 2018 Amendment Regulations were accompanied with an Explanatory Statement to Parliament. The relevant change was hidden amongst innocuous changes to four other different Regulations and refers to the other changes as a tidy up exercise, however:

  • For other retrospective changes, it states that the start of the changes does “not affect a relevant person’s rights so as to disadvantage the person, or impose a relevant liability on that person.” [The principle.}
  • No such statement was made regarding the retrospective changes affecting the Veterans.  It implies it is just a minor tidy up exercise. [Deception]. There is no mention that the retrospective change takes away a person’s rights so as to disadvantage that person in the middle of a legal proceedings. [Falsehood by Omission]. There is no mention that Justice Logan expressed concern that the ATO may try to change the law so that it effects the cases being heard. 
  • The statement claims, “The Regulations were released for public consultation from 22 October 2018 to 2 November 2018.” The public record indicates no such consultation was made for the specific change to Regulations affecting the Veteran cases before the courts. [The statement is false.]

Hearing Resumes 12 December 2018

The Hearing was advised that the AGS and ATO legal teams dealing with this case were only made aware of the changes and backdating on 7 December. (Some public consultation?). Justice Logan gave directions for the ATO to inform the Veterans on the impacts and set a timetable for further submissions to be made.

DFWA Representation (2019)

Michael Hart, Principal of DFWAQ Honorary Legal Advisor (Cleary Hoare Solicitors) who are representing Peter Burns and Wayne Douglas, met with and made representations to Stuart Robert, the Assistant Minister to withdraw these “reprehensible “changes. Both he and DFWA National President, Kel Ryan, made further written representations on 7 February and 11 March 2019 to the Minister. In response (16 April) to DFWA representations, and after prompting of the Minister’s staff by the DFWA Executive Director, Alf Jaugeitis, the Assistant Treasurer, denied the changes were targeted at the veterans (FOI evidence says otherwise). The reply did not address:

  • the false claim of public consultation.
  • the Judge’s concern about the ATO action, nor
  • the legal principle of not changing laws to disadvantage the person or impose a relevant liability on that person in middle of a court case, as per the Explanatory Note issued with the changes.

In reply, the Minister did thank Veterans for their service, presumably for protecting democratic principles and rule of law.

Justice Logan Comment. In relation to these changes, Justice Logan made the following comment that DFWA and the Veteran Community should take note for future reference.

“ … it is within the remit of the Governor-General in Council, even during the course of a review by the Tribunal of an administrative decision, to make subordinate legislation which at least purports to touch on that decision for reasons such as those in the Explanatory Statement. It is not for the Tribunal to impeach or question the political value judgement entailed in the tendering of advice to Federal Executive Council for the making of any regulations, only to construe their effect according to law. The merits of subordinate legislation are for a House of Parliament upon any motion for disallowance and, perhaps ultimately, for the electorate.[ii]” 

Comment. If the ATO faces a loss in the court, it has demonstrated that it is prepared to advise the government to change the law during a legal hearing to get the outcome it wants from that hearing. It is prepared to change the law to make previously illegal actions, legal. These cases will probably go to the High Court. If the decision there eventually favours the Veterans, based on experience in this case and the Goodfellow case,[iii]  the government is likely to introduce legislation changes to nullify or limit the effects of the court decision. It is up to DFWA and the Veteran Community to influence legislation so that the wellbeing and welfare of veterans and their families are not adversely affected by any such changes. That is - a public campaign.

 

Lobbying for Disallowance Motion (2019)

DFWA then commenced lobbying MPs and Senators to support a Disallowance Motion to block the “2018 Amendment Regulations”. The election intervened.

Unfortunately, DFWA was unsuccessful in having the regulation change disallowed. There was only limited time (ie, Parliament sitting days) after the election where this could have occurred. Over 150 individual letters were sent to MPs explaining the situation. Peter Burns, Wayne Douglas and their solicitor Daniel Paratore from Cleary Hoare were interviewed on the ABC 7-30 Report. (https://www.abc.net.au/7.30/veterans-challenge-ato-over-taxes-taken-out-of/11188108) Several other media briefings were given with journalists interested but the focus before the election was on popular issues and afterwards the interest was on how the pollsters and media predictions were all wrong. Veteran issues were low on both media and political party interests both after and, as we all observed, before the election. 

The AAT Decisions Delayed (December 2018 – March 2020)

Apart from the complexity of legislation, and many issues that fell out during hearings, the length of these cases were extended further by the introduction of the “2018 Amendment Regulations” which were introduced as result of these hearings. As stated by Justice Logan “The development was not a surprise, given the earlier course of submissions at the initial hearing.”

Over 15 months later, with further submissions related to the involvement of a reluctant CSC, Justice Logan was finally able to hand down separate decisions for each case in the March 2020.                                  

To no one will we sell, to no one will we deny, or delay right or justice.’ Magna Carta 1215.

 

 

A VETERAN WIN – AAT DECISIONS (March 2020)

 

Despite the government’s action in backdating laws, the Veterans still won. In the three separate cases, the AAT decided that the Commissioner of Taxation previous rulings in respect of the veterans’ objections to their taxation assessments be set aside and that the veterans’ objections be allowed.

For All Veterans Receiving Class A or B Invalidity Benefits from CSC. The decision in all three cases was that the Invalidity Benefit payments should have been, in legalistic terms:

  • a “superannuation benefit”,
  • a “superannuation lump sum”, and
  • a “disability superannuation benefit”

and was required to be treated as such in accordance with s 307-145 of the Income Tax Assessment Act. That is, less tax is to be paid. The Veterans won the legal argument.

The Effect. As these are test cases, the decisions apply to all veterans who have received and are receiving Invalidity Benefits from DFRDB and MSBS, and probably from DFRB and ADF Cover. If the decision stands, it means previous years’ assessments must be revised and refunds made, and future years taxation assessments have to be in accordance with the decision.

Comment: The ruling that the Invalidity Benefits paid fortnightly (but are reviewable) are regarded as “lump sums” may seem strange. However, the legislation classifies super payments as either an “superannuation income stream benefit” or as a “lump sum”. If the payment does not meet the definition of an “superannuation income stream benefit”, it is therefore automatically legally regarded as a “lump sum”. The CSC invalidity benefit does not meet the definition of the “superannuation income stream benefit” for several reasons, including that it can be reviewed and reduced to zero. It is therefore regarded as a “lump sum”, as are similar civilian superannuation disability benefits.

 

For Veterans Granted Retrospective Medical Discharge and Receiving Lump Sum Back Payments. Veteran Wayne Douglas originally had a normal discharge from the Army and had received a normal DFRDB super pension and commutation. 12 years after discharge, he applied for and was awarded a retrospective medical discharge on a Class A Invalidity Benefit. This resulted in a lump sum back payment for about 12 years of the Class A Invalidity Benefit which would have increased each year. It also meant he had to repay the normal DFRDB super pension and the commutation he had previously received.

These involved calculations going back over several financial years, with CPI increases to the super pension and the tax paid on it each year. The commutation amount and the tax paid on it also had to be calculated. These amounts then had to be subtracted from the lump sum back payment of the Invalidity Benefit and the tax due on that.

As result of initial checking, it appeared that Douglas had paid tax of $8346.66 twice and should have received credit for it. The Commissioner of Taxation agreed with this during the Hearing.

CSC Calculations were Wrong. In further exchanges between the ATO and CSC during the course of the hearing, CSC, on 4 October 2019, changed their previously provided PAYG statement of the lump sum in arrears payment to Douglas of $331,136.00, on which the ATO based the taxation to be paid. The new figure provided was $272,642.40 (being the total arrears received). The ATO had received incorrect information from CSC and as a result Douglas had been taxed incorrectly. The procedures used by CSC in making the earlier calculations were ruled incorrect. CSC declined to provide an explanation.

Justice Logan Observation. In his judgement (Endnote vii, paras 113-114) , Justice Logan observed,The reply of CSC of 4 October 2019 was, with due respect, singularly unhelpful … It is the CSC, not the Commissioner of Taxation or the Tribunal in his place, which is charged with the calculation and administration of payments under the DFRDB Act……The best assistance that the CSC has offered entails no explanation for how it came to specify $331,136.00 (as the amount of arrears payment) but an explanation that indicates that it should have specified $272,642.40.”

As a result of the miscalculations revealed during the hearings, the calculated refund due to Wayne Douglas went from the originally claimed amount of approximately $8000 to about $48,000.

The Effect This affects any Veteran who had a normal discharge from the ADF and subsequently received a DFRDB super pension and commutation lump sum, and subsequently was granted a retrospective medical discharge. The procedures used (and possibly still used) by CSC in calculating lump sum Class A or B Invalidity Pension arrears amounts and refunds on a previously paid DFRDB super pension and commutation and associated taxation amounts were ruled incorrect. If the decision stands, recalculations, and a refund are required.

THE COMMISSIONER of TAXATION APPEALS AGAINST the AAT DECISIONS (April 2020)

 In April, the Commissioner of Taxation lodged three separate appeals to the Federal Court against the AAT decisions. While it is understood that the ATO was hopeful of making the August 2020 sittings of the Federal Court, and failing that, the November sittings, both are in doubt because of COVID restrictions. Other aspects may also cause delay:

  • The ATO is challenging virtually every aspect of the reasons for the decisions in all cases. This includes those areas where the ATO had previously accepted the veteran argument during the AAT hearings.
  • Apart from the three Veterans, the ATO initially also designated the AAT as a respondent in these cases. This is most unusual and added another layer of complexity and indicated a potential broadening of the battle lines. (However as of June, the ATO is no longer pursuing this.)
  • The ATO has also engaged another QC, indicating a greater battle ahead. Under Test Case Litigation funding, this also entitles each of the veterans to engage a “funded” QC to provide the level playing field.

FURTHER DEVELOPMENTS (As of 30 June 2020)

ATO Advice. The ATO has advised Veterans that they will make the taxation assessments the same as they have before the AAT until the appeals process is completed. They have also contacted some veterans with objections already lodged and encouraged them to withdraw them until the appeal process is over.

From the ATO website (05 May 2020): “Until the appeals process is completed, the ATO will continue to administer the taxation of invalidity benefits paid by the DFRDB Scheme and the MSB Scheme in line with our current view that the invalidity benefits are superannuation income stream benefits. . . If you are affected by this litigation, we encourage you to refrain from seeking amendments, applying for a private ruling or objecting to your income tax assessments until the appeals process is finalised. Any applications for a private ruling, objection or amendment will be put on hold until the appeals process is completed. You will retain your full rights to seek review of your income tax assessments in the future. You won't be disadvantaged if you don't lodge an objection now. You'll be able to lodge an amendment request once the appeals process is completed. In the event that your amendment period has expired, the Commissioner will give favourable consideration to any requests to extend the time for lodgment of an objection. 

https://www.ato.gov.au/Individuals/Super/In-detail/Withdrawing-and-using-your-super/Treatment-of-military-invalidity-benefits-following-Administrative-Appeals-Tribunal-decisions/

DFWA QUESTIONS the ATO ADVICE (JUNE 2020)

ATO advice discourages veterans from lodging objections to previous Tax Assessments or from claiming refunds based on the AAT decision promising that veterans’ rights will be protected.

First. There is nothing to be lost by taxpayers’ exercising their full rights under the law for amendments, private rulings or objections. The ATO may gain by not being swamped with “pending” objections and improve their Performance Indicators.

Second. How has the ATO behaved in the past?   Consider:

  • The ATO induced Veterans to give up their objections and requests for private rulings and use a loophole to reduce their tax. The ATOI deliberately did not inform the Veterans that the loophole was closing.

 

  • The ATO initiated Regulation changes backdated to remove these veterans’ rights in the middle of these Hearings, and falsely claimed public consultation about the changes when even Senior Counsel (QC) at AAT advised, when questioned by Justice Logan, that they knew nothing about the changes until it was tabled.   

 

  • While the ATO claims veterans’ rights will be protected, at the same time, these ATO appeals are also aimed at removing these same rights. The ATO is challenging Justice Logan’s reasoning that veterans retained their accrued rights despite the 2018 Amendment Regulations[iv] introduced in the middle of the Hearings.

 

  • The government can attempt to amend, limit, or remove “full rights” by introducing new or changes to existing legislation or regulations. It is more difficult for the government to do this if taxpayers have already exercised their rights by making claims in their Tax Returns in accordance with the law as it stands at the time of lodging and by lodging objections, appeals etc when the ATO rejects the claims.

 

  • The government has a demonstrated history of changing regulations and legislation to undermine accrued rights. In case of veteran Goodfellow vs Commissioner of Taxation concerning the taxation of a Class A Invalidity pension, Goodfellow won at the High Court, and had his previous tax refunded as did other (DFRB and DFRDB) veterans who had previously lodged objections. However, the government immediately introduced legislation which removed the tax exemption for future tax years. The legislation was also so worded that other veterans who had been wrongly taxed, but who had not previously lodged objections (and therefore lost accrued rights), were not able to claim the refunds for previous years.[v]

 

DFWA ADVICE TO VETERANS CLASS A AND B DISABILITY BENEFITS 

 

  • There is no guarantee that the Veterans will win these precedent-setting cases.
  • Do not expect an early final decision. If the cases are listed for November sittings of the Federal Court, a decision is likely March – July 2021 depending on many factors. There is 28 days from the decision for an appeal to the High Court by the losing party. If granted leave to appeal, there may be a final High Court decision by early to mid-2022.
  • The government of the day may introduce Regulation or Legislation changes aimed at limiting or overcoming a decision in court favouring affected Veterans, especially those who have not lodged prior claims or objections to further protect accrued rights.
  • The following actions are intended only to help preserve Invalidity Benefit recipients of their rights in the event of a favourable final appeal decision.

DISCLAIMER: Each Veteran’s cases is different, and this advice is general only and should not be relied on for specific veteran situations.  DFWA is not qualified to give individual  financial or taxation advice and recommends that recipients of Class A and B Invalidity pensions from CSC seek professional financial or taxation advice.

WHAT TO DO

  1. See your accountant, financial advisor, tax agent or whoever does your Tax Returns. Advise them of the AAT test cases precedent setting decisions. (See links to the 3 Veteran cases below[vi].)
  2. Lodge an objection/appeal against your tax assessments for all the years you have received a Class A or Class B pension. (See ATO Factsheet on lodging an objection[vii].)
  3. For those who received lump sum back payments of Invalidity Benefits, request CSC provide you details of their calculations of the lump sum and tax withheld. Lodge an objection for the tax year(s) you received the lump sum back payment(s).
  4. Lodge these objections as soon as possible. The government may try take action to restrict access to making objections after the date a decision becomes law.
  5. For this FINANCIAL YEAR (FY 2019-20)
    1. Submit your Tax Return claiming your Class A/B Invalidity Benefit was a “superannuation benefit”, a “superannuation lump sum” and a “disability superannuation benefit” and was required to be treated in accordance with s 307-145 of the Income Tax Assessment Act 1997 (Cth) (ITAA97) in accordance with the law established in the AAT decisions.
    2. Raise an objection if ATO refuse your claim as per para 2 above.
    3. If ATO do not respond in the required time, lodge a complaint with the Inspector General of Taxation (IGT). (See How to Lodge A Complaint with the IGT[viii].)

It is unlikely that the above actions will result in getting early decision or resolution of this matter. The purpose of claiming in your Tax Return is to establish your rights as at the date of lodgement as is any follow-on objection.

Watch for DFWA notices on how to assist in the DFWA campaign against any government action to avoid paying the refunds due and avoid reducing their tax take in the future.

FINAL WORDS OF JUSTICE LOGAN

The original objections were raised in 2016. The AAT cases commenced late 2017. The complexities of military superannuation legislation interacting with industry standard legislation geared toward the Australian civilian norm, was recognized by all parties, and revealed itself as the cases developed in oral Hearings. The introduction of the backdated regulation changes in the middle of the Hearings and the reluctant involvement of CSC in proceedings, further added to the delay.

In handing down his decision in the Douglas case, Justice Logan stated his concern about the whole process and treatment of these veterans (Endnote vii, para 118):

“.. if the encounter in this case is any guide, to the prospect of being “broken by age and war” there must now be added for members and former members of the ADF the prospect of encounter with how we as a Nation State have come to regulate and tax the bargain struck on enlistment.”  

SPECIAL THANKS

Due recognition must be given to the three veterans, (Wayne Douglas, Peter Burns and GDGR) involved in these test cases. While Test Case Litigation funding helps, there are still the personal financial and emotional costs in being involved in the protracted litigation, not just on the veteran, but also on families. As the cases have “evolved” there have been numerous decisions to be made along the way and instructions given to solicitors. Knowing that these decisions may impact on the results of cases which affect other veterans and their families adds to the responsibility felt.

Thanks also to the legal team of Mr P Hack QC from Callinan Chambers and Daniel Paratore solicitor from DFWAQ Honorary Legal Advisors, Cleary Hoare, both ADF veterans who are giving excellent service to Veteran community. DFWA acknowledges the Test Case Litigation Funding provided by the ATO to create a level playing field is limited compared with normal funding. 

 

[i] Current ADF members are covered for superannuation and insurance under separate Acts, ADF Super and ADF Cover, however previous schemes had superannuation and insurance elements  covered under single Acts  -  Defence Force Retirement and Death Benefits (DFRDB) scheme and the Military Superannuation and Benefits Scheme (MSBS). 

[ii] See Endnote vii, para 25.

[iv] ATO Challenge to 2018 Amendment Regulations. “ ..the Tribunal should have found that:

2.3.2. on the true construction of the 2018 Amendment Regulations such a contrary intention existed, namely that these regulations apply on and after 1 July 2007.”

[v] See Endnote iii.

[vi] DFRDB and Retrospective Medical Discharge. Wayne Douglas vs Commissioner of Taxation. Brisbane AAT. 13 March 2020. http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/AATA/2020/494.html

MSBS (Pre 2004). Peter Burns vs Commissioner of Taxation. Brisbane AAT. 25 March 2020. http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/AATA/2020/671.html

MSBS (Post 2004). GDGR vs Commissioner of Taxation. Brisbane AAT. 30 March 2020.  http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/AATA/2020/766.html