Commissioner of Taxation v Douglas – Update

The Full Federal Court decision (Commissioner of Taxation v Douglas) in December 2020 found that military invalidity superannuation pensions payable under the Defence Force Retirement and Death Benefits (DFRDB) scheme and the Military Superannuation and Benefits (MSB) scheme commencing on or after 20 September 2007 are to be taxed as superannuation lump sums.

Whilst the decision has ensured that veterans are taxed at the correct rate by the end of the year, some veterans may be negatively impacted in the short term via withholding changes that the Commonwealth Superannuation Corporation (CSC) is required to make as a result of the Federal Court decision.

The Australian Government will legislate early in the next Parliament to ensure that no affected veteran is left worse off. This was announced in a Joint Media Release by the Minister for Defence Personnel and Minister for Veterans’ Affairs and the Assistant Treasurer and Minister for Housing on 24 November 2021.

Based on consultation with the veteran community to find the best solution, the Government legislation will affirm the Court’s decision as it applies to invalidity veterans in the DFRDB and MSB schemes, and will ensure that any veteran that may be negatively affected by the decision has solutions to remedy that position.

The Australian Government has committed $60 million to ensuring that veterans will not be negatively impacted as a result of the Douglas decision (2021-22 Mid-Year Economic and Fiscal Outlook, page 186).

The Government is continuing to consult with relevant groups and organisations from the veteran community to ensure that no veteran is worse off.

Veterans who are uncertain about the Douglas decision's implications on their pay as you go (PAYG) withholding can visit the Australian Taxation Office website for more information, including on options they may have to adjust their PAYG withholding based on their personal circumstances.