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  • Treatment of military invalidity benefits following Federal Court decision

    Federal Court decision

    On 4 December 2020, the Federal Court handed down its decisions on:

    • Commissioner of Taxation v Douglas [QUD103/2020]
    • Commissioner of Taxation v Burns [QUD114/2020]
    • Commissioner of Taxation v Walker [QUD115/2020].

    The case is cited as Commissioner of Taxation v Douglas [2020] FCAFC 220. The Court dismissed the Commissioner’s appeal in Douglas and Walker but allowed the appeal in Burns.

    We have not sought special leave to appeal the Federal Court’s decision in the matters of Commissioner of Taxation v Douglas and Commissioner of Taxation v Walker.

    In those matters, the Court determined that specific invalidity benefit payments paid under pensions that commenced on or after 20 September 2007 by the Defence Force Retirement and Death Benefits (DFRDB) Scheme and the Military Superannuation Benefits (MSB) Scheme are superannuation lump sum payments rather than superannuation income stream benefits.

    We are developing a streamlined income tax amendment process for eligible individuals who received invalidity benefit payments under pensions provided under the DFRDB and MSB schemes that commenced on or after 20 September 2007. This streamlined approach will make the process of objecting simpler and will provide an extension of time to object. The amendment process will require information from the Commonwealth Superannuation Corporation as well as information we already hold. We are working on having all necessary data to provide this streamlined service as soon as possible. We expect to be able to provide further information on the process and how individuals can determine their eligibility on our website in February 2021.

    If you have already lodged an objection you do not need to do anything. Once we have the relevant information to determine if you require amendments to your tax returns, we will advise you of that outcome and whether you are able to participate in the streamlined process.

    The Court also determined, in Commissioner of Taxation v Burns, that specific invalidity benefit payments paid under pensions that commenced before 20 September 2007 under the DFRDB and MSB schemes are superannuation income stream benefits and therefore have been taxed correctly. No application for special leave to appeal to the High Court of Australia has been filed in relation to this matter.

    We will continue to tax these specific invalidity benefit payments as superannuation income stream benefits, in line with the Federal Court decision.

    What this means for you

    If you believe that the Federal Court decision in Commissioner of Taxation v Douglas [2020] FCAFC 220 might affect you, at this time you:

    • don't need to seek an amendment
    • don't need to apply for a private ruling
    • don't need to lodge an objection to your income tax assessments.

    Any such applications for relevant pensions that commenced on or after 20 September 2007 will remain on hold until further information on the streamlined amendment process is released on our website in February 2021.

      Last modified: 19 Jan 2021QC 62497