ATO responds to criticism over veterans super lump sum ‘loophole’

The ATO has responded to reporting that the closing of a superannuation tax loophole is costing some veterans thousands of dollars in additional tax.

From 1 July 2017 a tax ‘loophole’ was closed, preventing superannuation pensions being claimed as lump sum payments, which could reduce the amount of tax owing on the payments. The change to the rules, and the way it has been handled, has angered some veterans.

In a statement the ATO says it is aware of reports in the media of rulings being issued to recipients of invalidity payments from the Military Superannuation and Benefit Scheme or Defence Force Retirement and Defined Benefit Scheme. The ATO notes that the majority of the requests for rulings were made in late 2015 and early 2016.

“The individuals were seeking clarity on the tax treatment of their invalidity payments. Specifically to confirm whether the payments were considered to be a superannuation benefit (lump sum or income stream) or whether they were an employment termination payment,” says the ATO.

“Prior to finalising the private rulings the ATO provided general information about how these invalidity payments would be taxed. This included additional information, above what was requested, advising the applicant that under the law at that time they could have their income stream payments taxed as superannuation lumps sums by making an election with the superannuation fund. In line with our usual practice the ATO suggested the applicants seek financial advice as to whether it was suitable for their personal situation.”

Related: Government closes super pension/lump sum ‘loophole’, costing veterans

The ATO says that making such a lump sum election could have reduced the amount of tax withheld from the payment.

However, the ATO says it did not advise any of the applicants of the Government’s intention to remove the lump sum election starting from 1 July 2017, as announced in the 2016 Budget.

Though the ATO says the final such private ruling was issued in late 2016, and the regulation removing the lump sum election was registered on 27 March 2017. Additionally, according to the ATO, the Commonwealth Superannuation Corporation (ComSuper) wrote to all taxpayers directly affected, and provided them with information prepared by the ATO. According to the Defence Force Welfare Association some veterans have commenced action against ComSuper in the AAT and Federal Court.

“The timing of the ATO issuing the private rulings did not prevent any of the affected individuals from accessing the lump sum election. The lump sum election has been available since 2007 and could have been accessed by the individual by making an election with their superannuation fund prior to receiving their payments,” says the ATO.

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