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  • Treatment of military invalidity benefits following Full Federal Court decision

    Due to the Full Federal Court decision in Commissioner of Taxation v Douglas [2020] FCAFC 220, the tax and super treatment of specific invalidity benefit payments has changed. We are commencing a remediation program for historical income tax assessments and super reporting for impacted individuals.

    Individuals receiving military invalidity benefits – impact of court decisions explains how to work out if you are affected by this decision.

    If you believe you are affected, the roadmap to remediation outlines the streamlined amendment process developed to make it easier to amend your previous income tax assessments. You can opt in now.

    Find out about:

    Watch:

    This video outlines the streamlined amendment process for people affected by the court decision.

    Media: Military Super Litigation
    http://tv.ato.gov.au/ato-tv/media?v=bi9or7odf463fxExternal Link (Duration: 0:09)

    Roadmap to remediation

    The roadmap below outlines the remediation process and timeframes.

    The length of time it takes to process and finalise amendments will depend on how complex your case is. If we don’t have your up-to-date information or you have outstanding tax return lodgments, it could cause delays.

    The amendment to your income tax assessment may not result in a credit or refund and the process needs to be applied to your specific circumstances before the precise outcome can be determined.

    Our planned roadmap for implementing this process is outlined below for:

    Income tax amendments for the 2010–11 to 2019–20 income years

    For income tax returns lodged for the 2010–11 to 2019–20 income years, invalidity benefits would have been taxed as super income stream benefits, regardless of when the invalidity pension commenced. Where the invalidity pension commenced on or after 20 September 2007, these benefits should have been taxed as super lump sums.

    We will use data we received from the Commonwealth Superannuation Corporation (CSC) to identify affected individuals, streamline the amendment and objection process and relieve individuals from having to separately obtain information from CSC for the amendments.

    If you are affected:

    • From 28 April 2021 to 31 May 2021, you will be able to opt-in to the streamlined amendment process. We will then contact those who have opted-in to confirm their identity, that they are affected by the court decision, and if they would like us to progress with the process. We will then commence amending income tax assessments. Simple amendments are likely to take up to 56 days. More complex cases may take longer.
    • From June 2021, we will identify and contact affected individuals who did not opt-in to discuss potential amendments to their income tax assessments. The timeframes for amendments are the same as above.

    Income tax treatment for the current income year (2021)

    For the current and future income years, CSC will apply the lump sum withholding rate to fortnightly payments as soon as practicable. Regardless of when this occurs, CSC will report all payments made this year as lump sum payments so we can apply the right tax treatment when income tax returns are lodged.

    For more information:

    Super remediation

    In May 2021, we will also commence using the information from CSC to:

    • ensure that payments which are now super lump sum payments are no longer counted towards your transfer balance cap, and
    • adjust your total super balance as required.

    When we adjust your total super balance, we will also consider if the change means you have no longer exceeded your contributions caps, and if you are now entitled to co-contributions or the low income super tax offset.

    See also:

    Streamlined amendment process

    If you are affected, there is a streamlined amendment process to make it easier for you to have previous years income tax assessments amended.

    You don't need to seek an amendment, private ruling or lodge an objection. The streamlined amendment process is simpler than an ordinary objection. We will obtain the necessary information from CSC and in most cases you will not have to provide any additional information. The streamlined amendment process also streamlines the request for an extension of time to object for income tax returns that are outside the two (or four) year period of review.

    Starting the streamlined amendment process now is your choice and this will not be your only opportunity to have your income tax assessments amended.

    If you are affected by the Federal Court decision and do not choose to start the streamlined amendment process now, you still retain all your rights to have income tax assessments reviewed under our ordinary processes, and we will contact you in the coming months to discuss an amendment with you.

    Before you start the streamlined amendment process

    Before you start the streamlined amendment process:

    • Read the step-by-step information to determine whether you are affected.
    • Understand the process and timeframes outlined in the roadmap to remediation.
    • Consider seeking financial advice based on your individual circumstances.
    • Ensure your income tax return lodgments are up to date.

    If your income tax lodgments are not up to date you will not be able to start the streamlined amendment process. If you are unsure you should check and rectify any outstanding returns before starting the amendment process.

    It's important to understand that any amendment may result in any of the following:

    • A credit or refund
    • A debit where you will have to pay money
    • A neutral outcome with no change overall
    • Additional financial impacts to other Government payments and obligations.

    Your outcome will depend on your personal circumstances. If the amendment process results in a credit, the credit will be used to offset any existing debt before any remaining refund is issued to you. If you get a debit outcome, we can offer payment arrangements with favourable terms around the repayment period and interest charges.

    Amendments that result in a change to your taxable income may have financial impacts to other payments and obligations, such as:

    • Family tax benefits
    • Child support obligations
    • Paid Parental leave payments and
    • Other government support payments that take into account your taxable income.

    Start the streamlined amendment process

    To start the streamlined amendment process now, you will need to email VeteranCommonwealthSuperannuation@ato.gov.au with the following information:

    • full name
    • phone and email contact details.

    Please do not provide any additional information at this stage. Once we have reviewed your email, we will contact you via phone to give you more information and progress the next step of the streamlined amendment process. When we call, we will need to confirm your identity by going through proof of identity questions. You can prepare with this information about what we need to establish your identity.

    Timeframes and outcomes

    Simple amendments are likely to take around 56 days, however more complex cases may take longer.

    Examples of more complex cases include individuals:

    • receiving disability superannuation benefits
    • who have received lump sum payments in arrears
    • with multiple super schemes
    • who have been party to a family law split

    These cases may require us to obtain further information from CSC.

    Once the streamlined amendment process is complete, we will send you your amended income tax notice of assessment. In most cases this will be sent to your myGov inbox.

    If the outcome of your amendments is a credit assessment, the credit will be used to offset any existing debt before any remaining refund is issued to you as soon as possible.

    If the outcome of your amendments is a debit assessment, we will contact you to discuss your options including setting up a payment arrangement with favourable terms.

    Additional guidance

    Further information required

    We are working closely with CSC to obtain the necessary information and in most cases, you will not have to provide any additional information. There may be some cases where we do need additional information. If we do need additional information, we will contact you.

    Participating in the streamlined amendment process

    We are unable to tell you whether participating in the streamlined amendment process is in your best interests. It is important to understand that the amendment to your income tax return may not result in a credit or refund. The amendment process needs to be applied to your specific circumstances before the precise outcome can be determined. We encourage you to seek professional financial advice to help you understand how a change in your taxable income affects your circumstances including superannuation and other payments and obligations, such as:

    • Family tax benefits
    • Child support obligations
    • Paid Parental leave payments and
    • Other government support payments that take into account your taxable income.

    Disability superannuation benefits – disability concession

    Note: If you are receiving an invalidity super benefit and believe you qualify for the disability concession, it is recommended that you apply to CSC for a determination before you start the streamlined amendment process to ensure that your amendments can be processed as efficiently as possible.

    Individuals receiving military invalidity benefits from CSC may qualify for those benefits to be treated as disability superannuation benefits. Where a military invalidity benefit is also a disability super benefit, a disability concession applies.

    Your benefit will be treated as a disability super benefit if:

    • you experience physical or mental ill health, and
    • two qualified medical practitioners have certified that because of the ill-health it is unlikely that you can ever be gainfully employed in a capacity for which you are reasonably qualified because of education, experience or training.

    Medical certificates that do not address your ability to work into the future are not sufficient.

    Where this evidence has been supplied to CSC during your invalidity assessment process, CSC will treat your benefit as a disability super benefit and will also report this to us so that we can tax your benefit appropriately.

    If you have not provided two medical certificates to CSC that specifically state that you meet the permanent incapacity definition, you can provide them at any time to CSC. CSC will then treat your benefit as a disability super benefit going forward and will inform the ATO so that we can ensure you have been and will be taxed correctly.

    Note: We do not make medical assessments. Your medical practitioner will make any medical assessment regarding your capacity to be employed in the future and provide medical certificates accordingly. We will only determine whether the incapacity test under taxation laws has been met and we may contact your medical practitioner to determine this if required.

    If you receive an invalidity super benefit it does not mean you automatically qualify for the disability concession. You must also obtain the medical certification described above.

    Definition of a registered medical practitioner

    A registered medical practitioner must have passed the required examinations or graduated from an accredited course and be registered by the relevant state registration board to practice.

    Objections and review rights

    The streamlined amendment process simplifies the objection process, but it applies the same legal powers as an ordinary objection and you retain the same rights to seek an external review if you disagree with the outcome of the streamlined amendment process.

    If you have an existing objection that was lodged before 15 March, it will be progressed as part of the streamlined amendment process.

    If you have an objection lodged after that, it will follow normal objection processes and timeframes.

      Last modified: 14 May 2021QC 62497