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Tax treatment of invalidity pensions

The Government has announced plans to introduce legislation to amend the tax treatment of invalidity pensions.

Last updated 27 June 2023

On 24 November 2021, the government announced they intended to change the tax treatment of invalidity pensions impacted by the Full Federal Court decision in Commissioner of Taxation v Douglas [2020] FCAFC 220 (the Douglas decision).

The Douglas decision applies to veterans or their beneficiary who receive an invalidity pension which started on or after 20 September 2007, and are paid from either the:

  • Military Super Benefits Scheme (MSBS)
  • Defence Force Retirement and Death Benefits (DFRDB) scheme.

The measure ensures that invalidity pensions impacted by the Douglas decision will continue to be treated as superannuation lump sums for income tax purposes.

The bill also ensures that no veteran is worse off because of the Douglas decision by introducing a non-refundable tax offset for affected veterans. The amendments apply to the 2007–08 income year and later years.

This measure is now law.

For more information, see: