New Process for the Taxation of Invalidity Benefits

This blog post provides an important update for veterans who are awaiting recalculation of past taxation assessments. The recalculation is a result of the recent Federal Court decision of Commissioner of Taxation v Douglas [2020] FCAFC 220. Affected veterans are those who entered into the Military Superannuation Benefits (MSB) and Defence Force Retirement or the Death Benefits (DFRDB) payment schemes which commenced after 20 September 2007.

The Australian Taxation Office (ATO) have now advised that to start the streamline amendment process, affected taxpayers must provide their full name, phone number and email contact details to  Upon receipt of these details, the ATO will contact the relevant taxpayers by phone to provide more information and progress you to the next steps.

The ATO have advised that simple amendments will likely take around 56 days and more complex cases will take longer.  The ATO considers more complex cases to include those that have, in the past, received lump sump payments in arrears or are with multiple super schemes. In terms of current and future income years, it has been advised that the Commonwealth Superannuation Corporation (CSC) will apply the lump sum withholding rate to fortnightly payments as soon as practicable. The ATO have advised that the CSC will report your payments made this year as lump sum payments so the ATO can apply the right tax treatment when income tax returns are lodged.

The ATO have further stated that the streamline amendment process expediates any request for an extension of time to object to income tax returns outside the two-year period of review. This is beneficial as you will not be required to request extensions of time if you require an amendment outside this time frame.

However, the streamlined amendment process is not the only opportunity to have income tax assessments amended and you will retain your rights to have your income tax returns reviewed under the ATO’s ordinary process.

Before commencing the streamline amendment process

The ATO have advised that before commencing the streamline amendment process you should determine whether you are affected by the Douglas decision, understand the process and timeframes set out, consider seeking financial advice based on your individual circumstances and ensure that you have lodged your previous income tax returns to date.  If your tax return lodgments are not up to date, you will not be able to start the streamlined amendment process.

The ATO have further advised that this process may result in a credit or refund, a debit where you may be required to pay additional amounts, or a neutral outcome with no change overall. Additionally, if you are in receipt of government payments, these payments may be impacted by any amendment made. In terms of other government payments and obligations an amendment may impact your family tax benefits, child support obligations, paid parental leave payments and other government support payments that take into account your taxable income. The ATO advises that they are unable to advise veterans as to whether participating in the streamlined amendment process is in the veteran’s best interests. There may be instances where opting into the streamline amendment process may result in a tax debt being payable by you due to the differing treatment of your incapacity payment.

The team at Butlers Business Lawyers have worked with veterans for years to deal with the tax implications of their CSC payments. If you would like more information regarding the streamline and ordinary tax review processes, advice on lodging previous tax returns, or you would like us to deal with the ATO on your behalf, please contact Butlers Business Lawyers on (02) 49297002 or send an enquiry to speak with a member of our team.