Taxation of DFRDB/MSBS Class A/B Invalidity Benefits Paid by CSC

14 Jul 2020

In March 2020, the Administrative Appeals Tribunal (AAT) in Brisbane upheld the objections of the three Veterans against the Australian Tax Office (ATO) treatment of their DFRDB and MSBS Class A and B Invalidity Benefits paid by the Commonwealth Superannuation Corporation (CSC). This effectively meant that the Invalidity Benefits paid by CSC should be treated as lump sum payment and not as superannuation income stream benefit, i.e., less tax to be paid.

In handing down his decision in the Douglas case, Justice Logan stated his concern about the whole process and treatment of these veterans:

“.. 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.”

In April, the Commissioner of Taxation lodged three separate appeals to the Federal Court against the AAT decisions and has advised Veterans the ATO will continue taxing as in the past, until the appeal process is finalised. It also encourages Veterans not to lodge objections, “promising” their rights will be protected.  

DFWA disagrees with the ATO advice and advises Veterans to complete their Tax Returns in accordance with the decision of the AAT and to exercise their right to lodge objections in line with the AAT decision.

For general advice for this Financial Year for affected Veterans and their professional tax advisor, click here.  For the detailed account of the progress of the legal proceedings with the ATO, go to Veterans Invalidity Payments and the ATO.