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

One of the first matters that I was alerted to when I became the Minister for Veterans' Affairs was that of what is referred to as the Douglas decision, a decision of the Federal Court, and the unintended consequences of that decision that may flow through to the veteran community. While the veteran community broadly welcomed the Douglas decision of 2020 and many veterans have benefited from that decision, we were alerted to concerns that a number of veterans were facing higher end-of-year tax liabilities as a result.

For context, the Douglas decision found that anyone who was receiving military invalidity benefits, paid under the Military Superannuation and Benefits Scheme or the Defence Force Retirement and Death Benefits Scheme, on or after September 2007 should be taxed as superannuation lump sums rather than superannuation income streams. For many, this did provide a tax benefit. There's no doubt, though, that the Douglas decision was highly complex, and it has taken time to work through some of the consequences of this decision to make sure that there are no unintended consequences left unresolved.

Labor committed to ensuring veterans were not left worse off as a consequence of the Douglas decision and the necessary legal changes flowing from it. Previously, these payments, under the MSBS and the DFRDB, were treated as asset test exemption income streams and defined as benefit income streams under both the Social Security Act and the Veterans' Entitlements Act.

A division having been called in the House of Representatives—

Sitting suspended from 16:31 to 16 : 44

As I was just explaining, the legislation that is before us today is part of Labor's commitment to ensuring that veterans are not left worse off as a consequence of the Federal Court's Douglas decision from 2020. The payments that flow to some veterans through the Military Superannuation and Benefits Scheme and the Defence Force Retirement and Death Benefits Scheme were previously, before the Douglas decision, treated under the Social Security Act and the Veterans' Entitlements Act as asset-test-exempt income streams and defined as benefit income streams. As a result of the Douglas decision, the lump-sum payments may not now qualify as benefit income streams or be exempt from asset tests. This leads to a high degree of uncertainty and risk of unintended consequences for veterans. We want to fix this problem, and that's what this legislation is all about. We want to ensure that veterans have certainty to maintain equity in the system and fairness in the way that income support recipients are means-tested and the way in which their pay rates are determined. Today, we're looking to resolve these issues once and for all to ensure that veterans are no worse off following the Federal Court's decision.

These new provisions in this bill, the Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024, insert a new income stream classification and assessment regime into the Social Security Act and the Veterans' Entitlements Act. These changes in the bill are designed to ensure the same assessment of income for invalidity payments and to ensure that invalidity payments continue to be treated as exempt from the assets test, clarifying the issues identified earlier. The new provisions are designed to ensure the same assessment of income for invalidity payments and to ensure that invalidity payments continue to be treated in the same way from an assets test point of view. This means that a person's invalidity payments that they may be receiving either through social security or under the Veterans' Entitlements Act, which are provided in recognition of the need for increased support due to service related conditions, are not negatively affected by other income or assets. This is intended to ensure that veterans and/or their partners receive a level of support that is consistent with the intent of that legislation and policy, before the unexpected findings that were delivered by the Federal Court in the Douglas decision. The last thing we want is to negatively impact those who have signed up to defend our nation. This bill seeks to ensure that no veteran is worse off as a result of the Douglas decision in the Federal Court, and I commend the bill to the House.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Assistant Minister for Defence) Share this | Link to this | Hansard source

The Full Federal Court's 2020 decision in Commissioner of Taxation v Douglas, commonly referred to now as the Douglas case, has created an unintended consequence for the means test applied to certain military invalidity benefit payments under existing legislation. These affected payments are invalidity benefits under the Military Superannuation and Benefits Scheme and the Defence Force Retirement and Death Benefits Scheme. Both schemes are now closed. The Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024 is required to ensure that veterans are no worse off following the Douglas decision.

Given the commitment that our military personnel make to serving our nation, we have a moral obligation to ensure that, when they retire from the Australian Defence Force, we look after them and, certainly in situations such as this, that they are no worse off because of the unintended consequences of this case. It's important to fix this problem, to give veterans certainty, to maintain equity in the system and to ensure fairness in the way income support recipients are means-tested and their payment rates determined. It's vital to remember that these benefits are received by veterans who have served our country, and we owe it to them to ensure that legislation supports them in a fair and equitable manner.

The government needs to amend legislation to ensure a clear and fair legal basis for assessing these payments within the income support system. This system provides targeted support to those who need it based on their income levels and circumstances. A key principle is to provide similar levels of support to people with similar means of supporting themselves. To maintain the system's equity and fairness to other income support recipients, these invalidity payments need to be assessed in line with how similar sources of income are assessed for other recipients.

This bill aims to ensure that veterans and their partners continue to receive income support at a rate that aligns with the original intent of the legislation and policy before the Douglas decision and is consistent with entitlements for other income support recipients, including other veterans, under existing arrangements.

The bill creates a new category of income stream in the Social Security Act and Veterans' Entitlements Act and a means-testing treatment designed to mirror the assessments obtained from the previous treatment before the Douglas decision. It inserts a new income stream classification and assessment regime under the Social Security Act and the Veterans' Entitlements Act. These new provisions aim to ensure the same assessment of income of invalidity payments and continued exemption of the invalidity payments from the assets test. This ensures that veterans and/or their partners receive a level of support consistent with the original intent of the legislation and policy, before the unexpected findings of the Douglas decision.

This bill also preserves the validity of all relevant historical income and asset assessments relating to affected payments. Importantly, the changes to the bill do not alter the income tax benefits from the Douglas decision for veterans and/or their partners. This approach ensures these military invalidity benefits continue to be treated similarly in the means test for other comparable types of income. This bill also ensures that veterans receiving military invalidity benefits will receive similar income support outcomes as other veterans with retirement benefits from the same military schemes and other Australians with similar income levels.

By passing this bill, we aim to maintain fairness and equity within the income support system and demonstrate our ongoing commitment to supporting our veterans, who have served our nation. We owe it to them to get this right, and that's what this bill does.

Justine Elliot (Richmond, Australian Labor Party, Assistant Minister for Social Services) Share this | Link to this | Hansard source

I'm pleased to be summing up on behalf of the Minister for Social Services. The Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024 amends the Social Security Act 1991 and the Veterans' Entitlements Act 1986 to establish a clear legal basis for means testing the income from military invalidity payments affected by the Full Federal Court's 2020 Douglas decision when recipients of those payments also seek support through our income support system.

As the Minister for Social Services outlined in her second reading speech, as a result of the Douglas decision, we can no longer treat invalidity benefit payments from the Defence Force Retirements and Death Benefits Scheme and the Military Superannuation Benefits Scheme as asset-test-exempt defined benefit income streams in the social security means test. When we apply the framework used to assess income types in the Social Security Act and the Veterans' Entitlements Act, it is apparent that there's actually no explicit alternative means-testing treatment for these payments that we can use instead.

The only alternative identified in existing legislation is clearly not intended for statutory superannuation benefits of this type, and analysis shows this alternative has significant legal risk and uncertainty, is unclear and would create inequities in the system, including amongst veterans themselves. That's why we need to establish a clear legal basis for means testing these payments in the social security system.

One option would have been for the government to make amendments to classify these invalidity benefit payments as lump sums for the purposes of income support legislation. This would be similar to the way the payments were classified in tax law following the Douglas decision. But the Social Security Act and Veterans' Entitlements Act are not bound by the way different types of payments are classified in the tax system. In fact, if the lump-sum treatment were applied to these payments in the social security means test, these veterans would actually be worse off because it would have the effect of reducing recipients' rates of support, leaving them with less money in their pockets.

That's why, with this bill, the Minister for Social Services is introducing a new classification of military invalidity pension income stream in the Social Security Act and Veterans' Entitlements Act, to cover the military invalidity payments that are impacted and affected by the Douglas decision. The assessment of the military invalidity pension income stream within the means test is designed to produce the same result as the historical assessments of the affected invalidity payments.

In addition, the bill provides for military invalidity pension income streams to be considered asset-test-exempt income streams under the acts, ensuring the payments remain exempt from the assets test for income support. In almost every case, the bill results in no change to the rate of income support veterans or their partners are currently receiving. Importantly, it would also mean veterans and their partners will continue to receive income support at a rate that is consistent with entitlements for other income support recipients under existing arrangements, including other DFRDB and MSBS veterans who receive retirement defined benefit income streams.

In addition, the bill validates past assessments of the affected invalidity payments under the previous treatment, which may be invalid in light of the Douglas decision. It also gives the secretary of the Department of Social Services and the Repatriation Commission the power to create instruments under relevant acts to set out conditions under which other income stream payments can be classified as military invalidity pension income streams if this is required down the track.

On behalf of the Minister for Social Services, I want to thank the member for Deakin and the opposition for indicating the bipartisan approach and support that has been taken by the coalition, and also the member for Deakin for engaging so positively and constructively with the minister's office and the minister herself on this really important legislation. With this bill, we are establishing a clear legal basis where currently there isn't one for means testing the income from those payments affected by the Douglas decision when recipients of these payments also seek support through our income support system.

It's so important to give our veterans certainty. For those who have served our nation, this change maintains equality in a way different income support recipients are means tested and gives that certainty to it. Again, I acknowledge the bipartisan support from across the parliament on this very important change.

Question agreed to.

Bill read a second time.

Ordered that this bill be reported to the House without amendment.