A tax change to the treatment of superannuation payments could be costing some veterans thousands of dollars, but the Government says it is simply closing a tax loophole.
In the 2016/17 Budget the Government announced a change to close, from 1 July 2017, a so-called ‘loophole’ which allowed superannuation pension payments to be treated as lump sum payments, reducing the amount of tax payable.
“It has been a longstanding feature of the Australian superannuation system that military personnel and military invalidity pensioners are subject to tax on their superannuation income streams. Under the Commonwealth Superannuation Corporation system, payments made before preservation age are treated as income and taxed accordingly,” said a joint statement by Minister for Revenue and Financial Services Kelly O’Dwyer and Minister for Veterans’ Affairs Dan Tehan.
According to the Government at the time of this announcement, 3 May 2016, “not one military invalidity pensioner or military personnel was using this loophole”.
However, “since September 2016, around 390 out of 11,800 military invalidity pension recipients have elected to make use of the loophole”.
“Only after the Budget announcement was made, a small number of military invalidity pensioners decided to change their arrangements to utilise the loophole, and reduce their tax obligations, prior to its closure.”
“None of the individuals who elected to access the loophole will be subject to any back payment of tax, however they will no longer be able to use the loophole from 1 July 2017. This change only impacts the way benefits provided by the Commonwealth Superannuation Corporation are treated, not benefits provided by the Department of Veterans’ Affairs.”
However some veterans’ groups take a different view. The Defence Force Welfare Association (DFWA) says the change will cost some veterans over $1,000 a month.
“Although it appears this change for veterans is an unintended consequence of a much broader taxation change, the veterans community as a whole considered it (if true) manifestly unfair. We all have the obligation to support our effected invalided veterans. We have asked the Government to ensure they will not be hit with higher taxes post 1 July 2017,” said DFWA National President David Jamison.
According to the DWFA some members are challenging ComSuper in the Administrative Appeals Tribunal and Federal Court over the way ComSuper has been reporting payments to the ATO.
The statement by Ministers O’Dwyer and Tehan said: “The Government is continuing to work with veterans and other interested parties in clarifying this issue.”
“The Government greatly values the service of all military personnel and acknowledges the dedication and sacrifices they and their families make every day in order to keep our nation safe.”
The statement by the Government follows from criticism by Labor.
“Labor is growing increasingly concerned of reports Government changes to superannuation legislation will adversely impact a number of veterans,” said a joint statement by Shadow Minister for Small Business and Financial Services Katy Gallagher and Shadow Minister for Veterans’ Affairs Amanda Rishworth.
“It is clear this issue is causing distress in the veterans and ex-service community, with the government failing to address their concerns.”
“It is incumbent on the Government to address these issues and provide clarity and transparency on this issue.”
“The Government must engage in proper consultation with the veterans and ex-service community to work through these unintended consequences.”