Coalition to safeguard veterans’ medical discharge benefits

The Morrison government will introduce legislation next year that will overturn a federal-court decision that taxes veterans’ medical benefit payments and impose hefty retrospective tax bills on them.

Veterans’ Affairs Minister Andrew Gee.

The Morrison government will try to reverse a federal court decision that would tax veterans’ medical benefit payments and impose hefty retrospective tax bills on them, in a significant win for former soldiers.

The Coalition will introduce legislation next year that will overturn a Federal Court ruling from December that backdated a tax amendment. The ruling meant that veterans discharged from the defence force for medical reasons – and unable to work – would have their pensions payments stripped back and face hefty retrospective tax bills.

The Federal Court decision, dubbed the “Douglas decision”, meant veterans’ medical discharge benefits or invalidity payments that began after Sept­ember 2007 would be taxed as superannuation lump sums rather than superannuation income stream benefits.

The decision meant veterans in some cases would have been $100 worse off a fortnight and faced retrospective tax bills.

Assistant Treasurer Michael Sukkar said the government was committed to ensuring the court decision did not have harmful fin­ancial implications for some veterans: “By developing legislation to ensure these benefits are again treated as income streams rather than lump sums for tax purposes, we are removing the impact on adversely affected veterans while also preserving the better tax outcome for veterans who welcomed the Douglas decision.”

Under the proposed changes, the Morrison government will try to make sure that almost 7000 veterans who would have had more tax withheld under the court decision will not be worse off. The proposed legislation would mean income streams would not be taxed as lump sums. It would also ensure veterans who are better off under the decision retain the tax benefit.

Veterans’ Affairs Minister Andrew Gee said he found it unacceptable that some former soldiers could be left up to $100 worth off each fortnight.

“Almost 6800 veterans would have had more tax withheld from their pension payments as a result of this court decision, meaning less money in their pockets every fortnight,” he said.

“Thousands of veterans were also facing the prospect of being hit with a notice for back taxes going back to 2017. It would have devastated so many vulnerable veterans.”

Mr Gee said decisive action was needed to ensure veterans who had fought for their nation were not disadvantaged.