Matt Keogh (Burt, Australian Labor Party, Minister for Veterans’ Affairs) Share this | Hansard source

Today I'm very proud to be speaking on this legislation, specifically schedule 9—taxation of military superannuation benefits: reversing the Douglas decision. The legislation will ensure that no veteran pays high income tax, following the Douglas decision of the full court of the Federal Court, which determined a different tax treatment for specific military invalidity pensions through superannuation schemes. This decision relates to some military invalidity pensions paid to veterans via the Commonwealth Superannuation Corporation—ComSuper.

While, in the most part, this decision has had a positive impact on payments for veterans, there are some who have been left worse off. The Douglas decision meant that military invalidity pensions that commenced on or after 20 September 2007 under the Defence Force Retirement and Death Benefits Scheme and the Military Superannuation and Benefits Scheme are to be taxed as superannuation lump sums rather than superannuation income stream benefits. This legislation today seeks to ensure that those individuals are not disadvantaged.

The Douglas decision, as currently enshrined in law, has potentially adverse income tax outcomes for some veterans receiving an invalidity pension and invalidity pay. As a result of the decision, the superannuation income stream withholding schedules no longer applied to affected veterans. I wish to emphasise that, while the Douglas decision provided a positive tax outcome for many affected veterans, it created adverse income taxation impacts for some veterans on a permanent basis. For others, even though they may not be worse off on an annual basis, they may find that they have more tax withheld on a fortnightly basis from their pension.

The decision may have flow-on impacts for other government entitlements as well, such as family tax benefit, childcare subsidy, private health insurance, rebate entitlements, child support assessments and HELP repayments. While the unintended consequences of the Douglas decision became apparent in mid-2021, the Commonwealth Superannuation Corporation applied and then paused the new withholding tax rates on a number of veterans. I can confirm that, in early 2022, ComSuper applied the new withholding tax rates to the remaining veterans. This has resulted in some veteran pensioners' fortnightly net payments being reduced.

The Albanese government is committed to ensuring veterans and their families receive the support they need and deserve. That begins with ensuring the unintended consequences of this decision are rectified, ensuring that no veteran is worse off. To counter the resulting adverse impacts of this change in the tax treatment of their superannuation benefit as a result of the Douglas decision, this schedule to the bill creates a non-refundable tax offset to ensure that these veterans will not pay any more income tax or Medicare levy on their superannuation lump sums than they would pay if these benefits were still treated in the previous way before the Douglas decision was handed down. We have consulted affected veterans as well as other key stakeholders and government departments in pulling this legislation together.

I do note that concerns have been raised in relation to the findings of the Royal Commission into the Defence and Veteran Suicide interim report, specifically the simplification and harmonising of legislation for veterans' entitlement. As the House well knows, the government has welcomed the interim report of the Royal Commission into Defence and Veteran Suicide and has responded to all 13 recommendations of that report. We are currently undertaking work on that simplification and harmonisation of veterans' entitlement legislation, as set out in recommendation 1.

This bill will maintain the benefits of the Douglas decision for invalidity benefits and super benefits for beneficiaries of invalidity pensions under the two military superannuation schemes, as mentioned before and after September 2007 and otherwise retrospectively and prospectively reverses the effect of the Douglas decision in relation to all other schemes consistent with the intent of current superannuation law. This legislation before us today reflects our commitment to ensure that veterans are not left worse off due to the Douglas decision and that veterans who have benefitted from this decision will continue to do so. This legislation will extend to the spouse and children pensions paid following the death of a veteran, on the Defence Force Retirement and Death Benefit Scheme or the Military Superannuation Benefit Scheme.

The Albanese government is committed to ensuring that no-one is held back and no-one is left behind. That is particularly important when speaking about our defence personnel and veteran community. We are committed to ensuring that veterans and their families receive the support they need but also that they frankly deserve, and I commend this bill to the House.

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