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Collateral damage: federal government's tax raid on disabled war veterans

Disabled military veterans say the federal government is about to launch a tax raid on their invalidity benefits with some injured diggers set to see their incomes hit for hundreds of dollars each week.

Veterans' activists say up to 5000 ex-soldiers, sailors and Air Force personnel around Australia, unable to work from injuries or illnesses suffered while serving in the military, are to set to become collateral damage as the government shuts down superannuation tax loopholes.

But the government says that fewer than 400 veterans, who only started using the loophole in the past 12 months, will be affected by the changes.

The veterans have been allowed to treat their regular invalidity benefits, paid from military superannuation savings, as lump sums for tax purposes, greatly reducing their tax bills.

But in the crackdown that takes effect on July 1, the benefits will be subject to normal tax treatment on super payments, hitting some injured ex-ADF personnel with tax bills of hundreds of dollars each fortnight.

Army veteran Gareth Jones, whose health was destroyed by his 17 years of ADF service, is expecting to be hit with a $268 bill each fortnight on his $1400 invalidity payments.

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Among his 20 medical conditions, the former staff-sergeant has had one leg amputated below the knee, has a steel knee in other leg, a steel-lower back and two shoulders with artificial tendons.

Mr Jones, who was medically discharged from the Army in 1997, says he and fellow veterans are very unhappy with the service they receive from the Commonwealth Superannuation Corporation but they are "stuck with" the government superannuation agency.

"We've just had Anzac week and we've had all the politicians out there say 'yes, we'll do this and we'll do that," Mr Jones said.

"It's those bastards who send us overseas to war to do what they want and then they abandon us when we get home."

Fellow veteran Peter Burns won the private tax ruling last year, allowing veterans to claim the tax discount and is now fighting a legal challenge in the Administrative Appeals Tribunal against the change of rules.

He says the government's objections to the injured diggers claiming the tax discount is "typical government sleight of hand" and joined in the criticism of the Commonwealth Superannuation Corporation.

Mr Burns says the CSC knew or should have known since 1997 that injured veterans could claim the tax exemption but said nothing before he won the ATO private ruling 20 years later.

"The Commonwealth Superannuation Corporation is desperately failing in its fiduciary duty to veterans," he said.

Both the CSC and the ATO referred inquiries about the row to acting Financial Service Minister Mathias Cormann whose office issued a statement.

"Following the 2016-17 Budget announcement, approximately 360 military pensioners as at May 2017 applied to take their fortnightly superannuation income streams as fortnightly 'lump sums' thereby reducing their tax," the statement read.

"'Affected' individuals were informed...April 7 that this would no longer permissible under the new rules.

"Importantly, the integrity measures apply to all recipients of superannuation streams.

"They do not target military invalidity pensioners.

"None of the military pensioners were taking their fortnightly pensions as lump sums before the 2016-17 Budget.

"All elected to take advantage of the loophole after the Government announced it was closing down the loophole."

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