Military vets in tax tangle

THE Albanese government is scrambling to fix a military superannuation mess that has resulted in up to 14,000 veterans having to redo tax returns going back as far as 2010.

But former defence personnel say its proposed legislation will instead entrench an unfair system at the expense of veterans who are unable to work in civilian life due to disabilities caused by their service.

This week, the Senate is due to debate legislation responding to a 2020 Federal Court decision that changed the way payments were made to people receiving invalidity payments from military super schemes.

The decision affected about 14,000 former defence members and has so far resulted in about 3500 applications to the Taxation Office to change tax returns up to a decade old.

But while the Defence Force Welfare Association agrees that legislation is needed to deal with the fallout of the court ruling, it says the proposed laws mean some veterans will end up paying thousands of dollars more in tax than others in almost identical circumstances.

It estimated that for a private who left after seven years, a difference of one day in when they were approved for the payment can result in a tax bill of an extra $6000 a year.

Peter Burns, who served in the army and was one of the veterans who brought the 2020 court case, said he would lose out because he was approved for invalidity payments before a cut-off date in 2007.

“It’s absurd,” he said. “We’ve ended up in this bizarre situation where a person can receive exactly the same payment as another person but they get a different tax treatment because of an arbitrary cut-off date.”

Before the Federal Court decision the ATO taxed invalidity payments to former defence force members unable to work civilian jobs under two military super schemes in the same way as regular superannuation income.

However, the court overturned this in a case called Douglas, finding the money should instead be taxed as a series of payments.

The apparently small difference resulted in big tax savings for some former defence members but exposed others to potential tax bills and threw the system into chaos.