DFWA NATIONAL OFFICE UPDATE JUNE-JULY 17
ADF PAY ARRANGEMENTS
Our Service Conditions Team has been liaising with the HQ ADF Personnel Capability office re the coming ADF pay arrangements and have been advised that the offer will be 2% per annum for the life of the Agreement (3 years). As a result we have gone to our in-service list asking for input and advice. So far there has been a less than enthusiastic response with one of the main concerns being the quantum of increase for Defence charges (i.e. rents, accommodation and meal charges etc) may leave some members worse off than at present. The DFRT hearing is scheduled in August at which we will present our position based on feedback from serving members.
TAXATION OF MILITARY INVALIDITY BENEFITS
Over the last month the National Office in conjunction with the QLD Branch and relevant FaceBook groups has been supporting veterans receiving invalidity superannuation payments that are impacted by the 2016 budget decision to remove a provision allowing this payment to be catagorised as lump sum payments that attract a lower tax rate.
The impact on those taking advantage of this (& there are 392 of them with potentially another 11,000) means an increased fortnightly tax bill of some hundreds of dollars (figure of $500 to $1,000 have been quoted). The government is playing hardball on this which is causing rising resentment in the veteran community.
It is our understanding that at the direction of the ATO, the CSC has been catagorising superannuation invalidity payments as a pension and therefore an income stream. We have contended that this reporting of Invalidity Benefits to the ATO is not in line with the Superannuation Industry (Supervision) Regulations 1994.
Until very recently, the ATO were not aware that Invalidity Benefits were subject to regular medical review. The real nature of the payment has yet to be accepted by the relevant Federal Authorities even though a reading of the Superannuation Industry (Supervision) Regulations 1994 - Reg 1.06 clearly reveals it to be in the nature of a compensation payment and not a “pension” within the meaning Superannuation Industry (Supervision) Regulations.
As a consequence of this understanding, a Private Ruling application was made on the 20th July 2015 to explore whether Invalidity Benefits were being taxed properly. The ATO sat on the decision for over a year although it advised that Military Invalidity Benefits were capable of meeting the election choice contained at Reg 995.1.03 of the ITAR 97 and individual veterans could make an election to have the payment treated as a lump sum for taxation purposes (which is what other super funds report invalidity payments as).
As we understand it there were some 95 applications pending before the end of 2015 and the ATO has the specific details of these.
It is germane to emphasize that this election avenue was not originally sort by veterans but offered by the ATO in August 2016 which at the same time, made a decision not to refer to the impending law change but only to the then existing law (and there is a documented record of this). What this meant was that because of the reviewable nature of Invalidity Benefits individuals were able to make an election to have their payments treated as a lump sum rather than a superannuation Income stream. If the individual could meet the definition of Superannuation Disability Benefits then a formula at Section 307.145 ITAA 97 would apply. To meet the definition, an individual had to obtain 2 Doctors reports stating that it is unlikely that the person could ever be employed in the capacity in which they are qualified. After meeting this definition, the formula at section 307.145 ITAA 97 applied. Without going through the actual formula, the outcome in most cases a vast reduction in taxation liability. The core principle has its genesis in the Report of the DFRDB Review “Cole Report” which states “furthermore Invalidity benefits will provide insurance being compensation for the employer benefit foregone because of premature termination of service”. When observing the formula at 307.145 ITAA 97, it is obvious that this formula identifies the compensation aspect to Military Invalidity Benefits. We believe that this taxation formula identifies the core principle of the purpose of invalidity.
Having been led down this path the Government regulation 995.1.03 of the ITAR97 has been repealed with effect 1 July 2017.
The questions that the impacted veterans ask of the Federal Government through the ATO is:
- Is an invalidity payment paid under either MSBS or DFRDB a pension in accordance with SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS 1994 - REG 1.06 (1) (a) (i): and if so
- Which standard of SUPERANNUATION INDUSTRY (SUPERVISION) REGULATIONS 1994 – REG 1.06 sub regulation (9A) applies to the payment.
In answer to a parliamentary question the Finance Minister has responded that the categorization of the invalidity payments as a superannuation Income stream is correct, an assertion those impacted disagree with. It would seem the issue will now be resolved as a result of legal action initiated by one of the veterans involved.
During my visit to Brisbane in June I met with the conveners of the two FaceBook pages addressing this issue to gain a better understanding of it. I subsequently met and briefed the Minister on the issue. Suffice to say he does not accept our position and with the Minister for Revenue and Financial Services (Kelly O’Dwyer MP) issued a media statement accusing the effected veterans of using a “loophole” to reduce their tax with an implication that there has been rorting of the system.
ADVOCACY TRAINING & DEVELOPMENT PROGRAM - DVA SUPPORT TO ESOs
While accepting that MRCA and the new DRCA have increased the complexity of Veterans’ legislation, and that this in turn has made it necessary for Advocates, Welfare and Pension Officers to be better trained and more competent, demands on ESO to recruit and support suitable candidates for these important services have also increased. Adoption of the reforms to Advocates’ training and development in the form of Advocacy Training & Development Program (ATDP) has created for ESOs, the principal source of volunteer Advocate and Welfare Officer Services, considerable difficulty.
National Office has written to DVA expressing these concerns. (A copy of the letter is attached- not for distribution outside Branch committees at this stage.)
IMPROVED CONSULTATION PROPOSAL - ESOs AND DVA
You may have seen some of the email traffic criticizing the effectiveness of the existing consultation arrangements. These have just been reviewed and though not without fault found to be reasonably satisfactory. However, I have gained a perception that inclusion of Ex-Service Organisation members views in advice to Government, emerging from the process of consultation, is seen by the Department as optional; including it where it agrees with the Departmental position and ignoring it where it does not.
Recent concerns have arisen within the veterans’ community over such questions as suicide among young veterans and the tax treatment of invalidity payments under the schemes administered by ComSuper that are rapidly creating a climate of resentment of the Department by the veterans. I, for my part, see faults in the process and effectiveness of consultation as one of the contributing factors for this growing resentment. I have written to the DVA Secretary outlining these and will seek an opportunity to discuss them with him in the near future. (Copy of letter attached – not for distribution outside Branch committees at this stage.)
TREASURY LAWS AMENDMENT (FAIR AND SUSTAINABLE SUPERANNUATION) ACT 2016
I met with the CEO of the Commonwealth Superannuation Corporation to discuss the tax issue (above) and the impact of the changes brought about by the Government’s changes to superannuation specifically the implications of the new Transfer Balance Cap (TBC). The QLD Branch raised a concern over the fairness of the calculations for defined benefit schemes TBC because the calculations are based on “gross amounts” which in the case of DB schemes include tax which in normal schemes is not a factor. (A copy of the correspondence to/from the Government is attached for information.)
NATIONAL ESO COOPERATION
At the last meeting of national ESO Leaders in March we agreed to the formation of a “Reference Group” to draft terms of reference and a way ahead to give effect to the mutual desire to collaborate more effectively for the good of those we jointly represent (the Defence Family). We will again meet in Canberra of the 9th August to consider the Reference Group report and agree the next steps. It is important to recognize that all major national ESOs (including the RSL) are involved in this process that has the support of both Defence and DVA.
There are moves within the Government and other parliamentary members to progress this issue and for which now I am informed has the support of the RSL. The target date for implementation is still by 11 November 2018.
I have been interviewed by the ABC morning program in Brisbane about the invalidity payment tax issue and have been giving input to the development of the SBS Insight Program that will focus on transition which isdue to be aired on 26 July.
We have welcomed John Scully as the Honorary Adviser Vocational Training to replace Ken Grierson who had to step aside due to work commitments but who remains as part of the vocational training team. My personal thanks go to Ken for his contribution to the Association in his previous role.
We also have a change in contact for the Northern Territory with Maj Simon Harvey stepping aside and Major Lisa-Jo Laing coming on board. Again my personal thanks go to Simon for his work in representing the Association in the NT.
 SUPERANNUATION BENEFITS
The aim of the MSBS is to ensure that an income stream is provided to members on retirement from the workforce. It would also give access to a lump sum on separation from the ADF to assist resettlement into civilian life. Finally, it would provide insurance against invalidity and death with the amount of benefit payable providing compensation for the retirement benefit foregone because of premature termination of service.