The Full Federal Court decision, Commissioner of Taxation v Douglas (the Douglas decision), changed the tax treatment of certain superannuation benefits paid to veterans from the Defence Force Retirement and Death Benefits (DFRDB) and Military Superannuation Benefits (MSB) schemes.
The Government is introducing legislation to ensure that the Douglas decision only affects the schemes and benefits specifically outlined in the decision and that no veteran faces worse income tax outcomes because of the decision. A draft bill, Treasury Laws Amendment (Measures for a later sitting) Bill 2022: Taxation of military superannuation benefits, and associated draft explanatory material, have been released for public consultation.
The draft bill will retrospectively and prospectively reverse the impact of the Douglas decision in relation to all schemes, other than invalidity benefits and death benefits for beneficiaries of invalidity pensioners paid from the DFRDB and MSB schemes that commence on or after 20 September 2007.
In addition, the draft bill will introduce a non-refundable tax offset to prevent adverse income tax outcomes being experienced by veterans in the DFRDB and MSB schemes affected by the retention of the Douglas decision.
The draft bill also extends these changes to Spouse and Children’s pensions paid to a spouse or child following the death of a member of a DFRDB or MSB scheme affected by the Douglas decision.