Chapter 1Chair’s report

1.1On the 15 February 2024, the Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024 was introduced in the House of Representatives by the Hon. Amanda Rishworth MP, Minister for Social Services (the Minister).[1]

1.2On 29 February 2024 the Senate referred the provisions of the Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024 (the bill) to the Community Affairs Legislation Committee (the committee) for inquiry and report by 10 April 2024.[2]

Purpose of the bill

1.3The bill seeks to amend the Social Security Act 1991 (Social Security Act) and the Veterans’ Entitlements Act 1986 (Veterans’ Entitlements Act) to ‘provide a clear legal foundation for the classification of military invalidity pensions affected by the Full Federal Court decision in Commissioner of Taxation v Douglas [2020] FCAFC 220’related to the social security and veterans’ entitlements means test.[3]

1.4This bill solely affects military invalidity pensions paid under two superannuation schemes impacted by the Douglas decision and commenced ‘on or after 20 September 2007’:

the Defence Force Retirement and Death Benefits Scheme (DFRDBS); and

the Military Superannuation and Benefits Scheme (MSBS).[4]

1.5The bill would introduce a new classification stream, the ‘military invalidity pension income stream’ to both the Social Security Act and Veterans’ Entitlements Act, thereby providing a framework for relevant military invalidity payments under the DFRDBS and MSBS to be assessed.[5]

1.6The bill would not impact the government’s existing response to the Douglas decision, therefore preserving the income tax benefits of the Douglas decision to entitled veterans and/or their partners.[6] Instead, as described by the Department of Social Services (the Department), the:

… assessment of a military invalidity pension income stream within the income test is designed to produce the same result as the historical assessments of the affected invalidity payments. Military invalidity pension income streams will also be exempt from the assets test, consistent with the historical treatment applied to the affected invalidity payments.[7]

1.7This will ensure veterans ‘receive income support at the same rate they were always intended to receive, and consistent with the outcomes for other veterans’.[8]

1.8In her second reading speech, the Minister explained that the provisions from this bill would preserve the ‘equity of Australia’s social security system’.[9]

Conduct of the inquiry

1.9Details of the inquiry were made available on the committee’s website. The committee also contacted a number of organisations and individuals to invite written submissions by 15 March 2024.

1.10The committee received 8 submissions, as listed at Appendix 1.

1.11The committee held a public hearing in Canberra on 27 March 2024. A list of witnesses who gave evidence is included at Appendix 2.

Note on references

1.12References to Committee Hansard in this report are to proof transcripts. Page numbers may vary between proof and official transcripts.

Acknowledgements

1.13The committee thanks the organisations and individuals who contributed to the inquiry by making written submissions and giving evidence at the public hearing.

Background

The income support system

1.14The income support system ‘uses means testing to target support to those who need it most, and aims to provide similar levels of support to people with similar levels of income or assets’.[10]

1.15For the purposes of the Social Security Actand the Veterans’ Entitlements Act,income streams are defined as ‘regular series of payments made directly from superannuation or purchased with a lump sum’.[11] As noted by the Department, this definition may differ to the interpretation set out in taxation law.[12]

1.16Income streams are assessed using the income test alone or both the income and asset test, ‘depending on the features of the income stream and the way it is categorised and treated under the two Acts’.[13] This influences the eligibility and payment rate of an individual within the income support system.[14]

The Douglas Decision

1.17The Commissioner of Taxation v Douglas [2020] FCAFC 220 (Douglas) case investigated the taxation treatment (lump sum or income stream) of invalidity benefits paid to former Australian Defence Force members under the MSBS or the DFRDBS.[15]

1.18On 4 December 2020, the Douglas case determined that military invalidity benefits paid on or after 20 September 2007 under MSBS or DFRDBS were entitled to concessional tax treatment as a superannuation lump sum[16] despite the payments periodically occurring.[17]

1.19This decision diverted from the policy’s initial intent of treating affected payments as superannuation income streams.[18] These payments failed to meet the criteria of a superannuation income stream due to a discrepancy in its statutory definition, resulting in the treatment of these payments as a lump sum.[19]

1.20The Douglas decision caused the historical handling of these payments (as an asset test defined benefit income stream) to no longer apply, creating a gap in an alternative and explicit means testing treatment. This has, as noted by the Minister, resulted in ‘significant legal risk and uncertainty … and creates inequities in the system, including among veterans themselves’.[20]

The implications of the Douglas decision on the Social Security Act and the Veterans’ Entitlements Act

1.21There is a unique flow on effect from the Douglas decision that specifically impacts the Social Security Act and the Veterans’ Entitlements Act:

… because of the Douglas decision, it is now understood that this means-testing treatment for social security purposes—as an asset-test exempt defined benefit income stream—can no longer apply to the invalidity benefit payments.

When we apply the framework used to assess income types in the Social Security Act and the Veterans' Entitlements Act, it is apparent there is no explicit, alternative means-testing treatment for these payments that we can use instead.[21]

1.22The Explanatory Memorandum outlines the intention of the bill as seeking to alter the legislation to reflect the original intent of the policy and legislation prior to the Douglas decision:

This Bill provides a clear legal foundation for the assessment of the affected payments within the means test by inserting a new income stream classification and assessment regime for them under the Social Security Act and the Veterans’ Entitlements Act. The new provisions are designed to produce the same assessment of income as the historical assessments of the affected invalidity payments, and to ensure the invalidity payments continue to be treated as exempt from the assets test. These arrangements are intended to ensure veterans and/or their partners receive a level of support that is consistent with the intent of legislation and policy before the unexpected findings of the Douglas decision.[22]

1.23Further, the Minister emphasised:

The assessment of a military invalidity pension income stream within the means test is designed to produce the same result as the historical assessments of the affected invalidity payments.[23]

1.24The Department noted that there are approximately 850 current income support recipients who are veterans with income from an affected invalidity payment, or their partners.[24] The Department clarified that while ‘more than 16,000 veterans in total are receiving an affected invalidity payment from the Commonwealth Superannuation Corporation, the payments usually provide income at a level that has always precluded people from income support’.[25]

1.25In terms of the specific effects of the passage of the bill, the Department also highlighted the financial impacts on individuals receiving affected payments, particularly:

The characteristics of the payments relevant to their assessment in the means test have not been changed by the Douglas decision. The payments continue to provide a regular fortnightly income, the gross amount of the payments has not been reduced and in most cases, veterans have more disposable income because they pay less tax on their invalidity payments.[26]

1.26Therefore, this bill aims to rectify this gap by introducing a new classification of ‘military invalidity pension income stream’ in the Social Security Actand Veterans’ Entitlements Act.[27]

Amendments to the Social Security Act 1991

1.27The bill would make a range of amendments to the Social Security Act.

1.28Through the proposed insertion of a new subsection 9(1G), the bill ‘prescribes the circumstances in which an income stream is a military invalidity pension income stream’.[28]As defined in the proposed subsection:

An income stream is a military invalidity pension income stream if:

(a) the income stream is:

(i) invalidity pay within the meaning of the Defence Force

Retirement and Death Benefits Act 1973; or

(ii) an invalidity pension under the superannuation scheme

established under the Military Superannuation and

Benefits Act 1991; or

(iii) an income stream provided under a superannuation

scheme and that is covered by an instrument under

subsection (3); and

(b) the income stream is not a defined benefit income stream.[29]

1.29The Explanatory Memorandum for the bill outlines that the proposed new definition ‘also provides that an income stream cannot be a military invalidity pension income stream if that income stream is a defined benefit income stream’.[30]

1.30The bill would make a range of substitutions throughout the Social Security Act to reflect the updated definition.[31]

1.31In accordance with proposed subparagraph 9(1G)(a)(iii) outlined above, the bill would also grant power to the Secretary of the Department, via legislative instrument, to specify, describe and determine requirements relating to an income stream.[32] This delegated power is ‘not limited to income streams relating to military service, or invalidity’.[33]

1.32The bill would also provide that a military invalidity pension income stream is an asset test exempt income stream for the purposes of the Social Security Act.[34] Substitutions are proposed throughout the Social Security Act to clearly articulate this clarification.[35]

1.33The amount a person is taken to have received from a military invalidity pension income stream is to be calculated by a prescribed method outlined in the bill.[36] The calculation requires the special reduction amount (the sum of the amounts that would be tax free components under the Income Tax Assessment Act 1997)to be subtracted from the annual payment (the amount payable to the person for the year under the income stream).[37]

1.34In regard to the definition of the special reduction amount, the Explanatory Memorandum explains it is intended to:

… produce the same assessment of income as was obtained prior to the Douglas decision, when the affected payments were taken to be asset–test exempt defined benefit income streams under the Social Security Act, and to be superannuation income streams for tax purposes.[38]

1.35The bill would place caps on the special reduction amount by specifying if the special reduction amount would exceed 10 percent of the amount payable to the person for the year under the income stream, the special reduction amount is taken to be an amount equal to 10 percent of the amount payable to the person for the year under the income stream.[39]

1.36The Explanatory Memorandum further elaborates that this aligns with the approach taken to other income streams within the Act:

Taking the special reduction amount to be equal to 10% of the amount payable in such circumstances is consistent with the framework that applies to calculating the deductible amount when working out the ordinary income for non-military defined benefit income streams under subsection 1099A(2) of the Social Security Act.[40]

1.37The bill would recognise that military invalidity pension income streams could also be family law affected income streams for the purposes of the Social Security Act.[41] As such, the bill would amend subsections 1099DB(1) and (2) of the Social Security Act to:

… ensure that these provisions, regarding the assessment of income from asset-test exempt income streams that are family law affected income streams, apply to military invalidity pension income streams.[42]

1.38In further regard to a military invalidity pension income stream that is also a family law affected income stream, the bill would provide delegated authority to the Secretary of the Department via legislative instrument to:

… formulate decision-making principles to be complied with by the Secretary or their delegates in making decisions about the amount of income that is taken to be received from a military invalidity pension income stream that is also a family law affected income stream.[43]

Amendments to the Veterans’ Entitlements Act 1986

1.39The proposed amendments to the Veterans’ Entitlements Actclosely mirror those proposed for the Social Security Act.

1.40The proposed subsection 5J(1EA) inserts a definition of a military invalidity pension income stream as follows:

An income stream is a military invalidity pension income streamif:

(a) the income stream is:

(i) invalidity pay within the meaning of the Defence Force

Retirement and Death Benefits Act 1973; or

(ii) an invalidity pension under the superannuation scheme

established under the Military Superannuation and

Benefits Act 1991; or

(iii) an income stream provided under a superannuation

scheme and that is covered by an instrument under

subsection (1FA); and

(b) the income stream is not a defined benefit income stream.[44]

1.41The bill would grant delegated powers to the Repatriation Commission via legislative instrument to specify, describe or determine requirements relating to an income stream, regardless of whether the income stream relates to military service or invalidity.[45] The bill would also insert a new subsection 5J(1FB) to ‘clarify that an instrument made under new subsection 5J(1fa) may provide differently in relation to different kinds of income streams and different kinds of circumstances’.[46]

1.42The Department specifies that the instrument making powers are required to:

… allow for certain incapacity payments provided by a small number of legacy superannuation schemes to be treated on the same basis as military invalidity pensions affected by the Douglas decision. These payments may also fail to meet the requirements for being treated as a defined benefit income stream in the means test, for reasons independent of Douglas.[47]

1.43Through the provision of proposed new subsection 5JBB, the bill would define a military invalidity pension income stream as an asset test exempt income stream for the purposes of the Veterans’ Entitlements Act.[48] The bill would also make updates to the definitions within the Veterans’ Entitlements Act to reflect this updated definition.[49]

1.44The bill would add a ‘new substantive means-test framework for military invalidity pension income streams into the Veterans’ Entitlements Act’.[50] Through the introduction of a similar mechanism to that in the Social Security Act, the bill outlines that a military invalidity pension income stream would be calculated by subtracting the special reduction amount from the annual payment.[51]

1.45As the Explanatory Memorandum elaborates, the annual payment is ‘the amount payable to the person for the year under the income stream. This is the gross amount payable, before any deductions’.[52] Further, the special reduction amount is the sum of the payments received under the military invalidity pension income stream during the year that would be classified as tax-free components under Subdivision 307-C of the Income Tax Assessment Act 1997.[53]

1.46These changes are required because:

… the decision in Douglas found that, for tax purposes, the affected payments are superannuation lump sums, rather than superannuation income streams. The definition of the special reduction amount is intended to produce the same assessment of income as was obtained prior to the Douglas decision, when the affected payments were taken to be asset test exempt defined benefit income streams under the Veterans’ Entitlements Act, and to be superannuation income streams for tax purposes.[54]

1.47The bill seeks to acknowledge that military invalidity pension income streams may also be family law affected income streams for the purposes of the Veterans’ Entitlements Act and would ensure ‘the assessment of income from asset-test exempt income streams that are family law affected income streams, apply to military invalidity pension income streams’.[55]

1.48With the recognition that a military invalidity pension income stream may also be a family law affected income stream, the bill also makes provision for delegated authority to the Repatriation Commission via legislative instrument to:

… formulate decision‑making principles to be complied with by the Commission or their delegates in making decisions about the amount of income that is taken to be received from a military invalidity pension income stream that is also a family law affected income stream.[56]

1.49In relation to the delegated authority for the purposes of both the Social Security Act and Veterans’ Entitlements Act, the Minister highlighted the purpose of these powers:

The bill also allows the Secretary of the Department of Social Services, or the Repatriation Commission, to specify additional income stream payments as military invalidity pension income streams by means of a disallowable instrument. This will allow for other incapacity payments from legacy superannuation schemes that may also be found to no longer meet the requirements for being treated as an asset-test exempt defined benefit income stream for reasons independent of Douglas to be included down the track.[57]

1.50The bill would also ensure that military invalidity pension income streams are fully asset test exempt for the purposes of the Veterans’ Entitlements Act.[58]

Application and validity

1.51Through Part 2 of Schedule 1 of the bill, the legislation seeks to clearly articulate the application of the proposed amendments to both the Social Security Act and the Veterans’ Entitlement Act. Specifically, the bill outlines that the amendments that apply in relation to calculating the income of an individual are to be considered using the updated calculation methods, ‘whether the income stream began to be provided to the person before, on or after commencement’[59] of the bill.

1.52The Explanatory Memorandum further articulates that this:

… ensures there is a clear legal foundation for means test assessments for the affected payments going forward, even if the person’s income stream may have begun before commencement.[60]

1.53In relation to the amended calculations proposed in the Social Security Act, the bill also makes provision that where affected payments have been calculated ‘pursuant to the understanding of the law as it was intended to operate prior to the Douglas decision’, they remain valid and effective.[61]

1.54Specifically, the Explanatory Memorandum dictates that this:

… ensures that the means testing of an affected payment, which commenced on or after 20 September 2007, will not be impacted retrospectively as a result of the Douglas decision. For example, if an affected payment was previously assessed under section 1099A of the Social Security Act on the basis that it was then considered to be an asset-test exempt income stream that is a defined benefit income stream, and the deductible amount (as defined in subsection 9(1) of the Act) was applied, such actions will be taken to have always been valid and effective.[62]

1.55In regards to timing, the Explanatory Memorandum notes that the validation provision extends to ‘decisions made after commencement to work out the ordinary income of an affected payment for periods prior to commencement’.[63]

1.56For example, where a payment is reclassified to a military invalidity pension income stream with a start date prior to commencement of the bill, the validation provision would enable the income stream to be calculated on the understanding of the law as it operated prior to the Douglas decision.[64] Following commencement of the bill, the payment would be treated as a military invalidity pension income stream per the proposed amendments in Part 1 of the bill.[65]

1.57Similarly, the bill proposes a validation mechanism for calculations undertaken in regards to the Veterans’ Entitlements Act, taken prior to the commencement of the bill. For decisions taken in relation to the working out of a person’s ordinary income under the Veterans’ Entitlements Act, ‘where the working out of the ordinary income was done pursuant to the understanding of the law as it was intended to operate prior to the Douglasdecision’, the decision is taken to be valid and effective and to have always been valid and effective, for all purposes.[66]

1.58These provisions are designed to ensure that ‘the means testing of an affected payment, which commenced on or after 20 September 2007, will not be impacted retrospectively as a result of the Douglasdecision’.[67]

1.59Of these proposed amendments, the Minister stated:

The bill also includes a provision to validate past assessments of the affected invalidity payments under the means test for income support, as these may have become invalid due to the payments being treated as asset-test exempt defined benefit income streams, which the Douglas decision now precludes.

Importantly, this provision confirms past means-test assessments without removing people's rights of review or appeal in cases where decisions may have been invalid for other reasons.[68]

1.60The Department further emphasised that it is:

… highly unlikely that any veteran and/or their partner would be detrimentally affected by the operation of the validation provisions, because the validation provisions deem the historical treatment of the affected payments in the means test to be valid and effective, and to have always been valid and effective.[69]

Consequential amendments

1.61The bill would also require two minor technical amendments to two legislative instruments within the social security portfolio. The Social Security (Obtaining Information to Verify Claims – Income Stream Recipients) Specification 2017 would be amended to include appropriate references to the new category of military invalidity pension income stream.[70] Further, the Social Security (Family Law Affected Income Streams) Principles 2022 will be amended to include appropriate references to military invalidity pension income streams.[71]

Financial impact statement

1.62The financial impact of the changes introduced by this bill would be $11.9million in departmental costs over the forward estimates from 2023–24 to2027-28.[72]

Compatibility with human rights

1.63According to the Statement of Compatibility with Human Rights (the statement), the bill is compatible with human rights as it promotes and supports the right to social security and the right to an adequate standard of living.[73]

1.64Specifically, the statement outlined:

By ensuring a clear legal basis for the assessment of military invalidity pension income streams in the social security and veterans’ entitlements means tests, the Bill ensures veterans and their partners continue to receive appropriate social security and veterans’ benefits to support an adequate standard of living, consistent with their means of self-support.[74]

Consideration by other committees

1.65The Parliamentary Joint Committee on Human Rights made no comment on the bill in its Report 2 of 2024.[75]

1.66The Senate Standing Committee for the Scrutiny of Bills (Scrutiny Committee) in its Scrutiny Digest 3 of 2024 raised concern regarding the bill’s ‘retrospective application’ as it challenges the basic principle that ‘laws should only operate prospectively’, drawing heightened concern if the bill were to negatively impact affected individuals.[76]

1.67The Scrutiny Committee continued to express that while a justification for retrospectivity has been provided in the Explanatory Memorandum, the committee requests:

… the ministers’ advice as to whether any persons are likely to be detrimentally affected by the retrospective application of the legislation and, if so, to what extent their interests are likely to be affected.[77]

1.68In response to the Scrutiny Committee’s concern, the Minister indicated that:

… it is highly unlikely that any veteran and/or their partner would be detrimentally affected by the operation of the validation provisions because they deem the historical treatment of the affected payments in the means test to be valid and effective, and to have always been so. The provisions do not operate retrospectively to change anything that occurred in the past and they cannot result in any debts arising for past periods. The validation provisions do not remove people’s rights of review or appeal in cases where decisions may have been invalid for other reasons.[78]

1.69The Scrutiny Committee noted that whilst they appreciate and acknowledge the Minister’s response and advice on retrospective validation, it ‘remains unclear to the committee’:

whether a veteran (or their partner) who have received both a relevant invalidity payment and income support payment ‘would have been entitled to a greater payment in the past than that which they received in accordance with the law as it stands following the Douglasdecision’; and

‘what rights such persons would have to claim additional amounts of payment but for the respective validation provisions contained in the bill’.[79]

1.70Furthermore, the Scrutiny Committee has ‘requested that an addendum to the explanatory memorandum be tabled containing the key information provided by the minister … and, if needed as extrinsic material to assist with interpretation’.[80] Beyond this, they have advised:

The committee otherwise draws to the attention of senators and leaves to the Senate as a whole the appropriateness of retrospectively validating past assessments of the military invalidity payment.[81]

Views on the bill

1.71Inquiry participants were broadly supportive of the bill’s intent as it clarifies the treatment of military invalidity pensions affected by the Douglas decision.[82] For example, the Department of Defence explained that they are ‘supportive of the Bill’ as ‘it appears to take a sensible and practical approach, with no veteran being worse off’.[83]

1.72The Defence Force Welfare Association explained they ‘support action that provides relief to those veterans who have been negatively impacted by the Douglas decision’.[84]

1.73In their submission, the Department of Defence explained that the ‘Bill is advantageous to those veterans that receive income support and have been affected by the Douglas decision’, stating that:

The amendments will ensure relevant military invalidity payments can be means tested for income support in a way that delivers the same outcomes for those veterans affected by the Douglas decision as the pre-Douglas arrangements.[85]

1.74The Department explained in an answer to a question on notice that if affected invalidity payments were ‘treated as lump sum payments social security purposes’ the ‘full (gross) value of the benefits would be counted in the income test’. They further elaborated:

This would be less beneficial than the historical/ current treatment, which allows for a portion of the income provided by the benefit to be disregarded in the income test.[86]

1.75The Department of Defence noted that ‘without the new provisions, veterans affected by the Douglasdecision that also receive income support would be worse off’.[87]

1.76The Returned and Services League of Australia welcomed ‘the simplification that is intended to be delivered by the Bill’.[88]

Establishment of the Military Invalidity Pension Income Stream

1.77The Department explained that under the two acts, the bill will ‘introduce a new category of income stream’ known as ‘military invalidity pension income stream’ which will include ‘affected invalidity payments’.[89]

1.78This new category of income stream, as described by the Department, will be exempt from the asset test and ensure:

… veterans with income from a military invalidity pension income stream receive income support at the same rate they were always intended to receive, and consistent with outcomes for other veterans.[90]

1.79The Defence Force Welfare Association told the committee that they welcome measures that provide a ‘clear legal foundation for the assessment of military superannuation disability payments within the means test’ under the Social Security Actand the Veterans’ Entitlements Act.[91]

1.80The Department of Defence commented that the bill ‘provides a clear legal basis for the assessment of income for military invalidity pensions affected by the Douglas decision’.[92]

1.81Similarly, the Department of Veterans’ Affairs regarded the bill’s amendments as:

… important as they give veterans and their families’ certainty by ensuring there is a fair and clear legal basis for assessing these invalidity benefit payments in the income support system.[93]

1.82At the hearing, when asked what the risk would be if the bill was not passed, Mr Luke Brown from the Department of Veterans’ Affairs explained that:

We would leave the veteran community in a state of confusion, ambiguity and uncertainty about the way that these payments might impact their service pensions and so forth into the future. It leaves the legal status of these payments for means-testing purposes unclear.[94]

Potential unintended consequences of the legislation

1.83Some submitters were concerned about unintended adverse effects on veterans because of this legislation.[95] For example, the Returned and Services League of Australia advocated that:

… the proposed amendments must not negatively impact or reduce the existing payments that are made available to veterans and their families.[96]

1.84Further, the Defence Force Welfare Association commented:

… we absolutely oppose any action that removes any tax or other benefits flowing from the decision in Douglas.[97]

1.85The Department specified that there will be less than five individuals who will receive a lower rate of payment as a result of the passage of the bill.[98] Further, the Department noted that following the commencement of the bill:

… these individuals’ income support payment rates will be reset to a level consistent with what was always intended by policy and legislation, and with the rates provided to other veterans, including those receiving retirement benefits from the same military superannuation schemes. No debts will be incurred by these individuals.[99]

1.86In an answer to a question on notice, the Department indicated that these affected individuals will be contacted by a senior officer from Services Australia who will ‘explain the legislative changes and how it will affect their assessed income and income support payment rate’.[100]

1.87The Department of Defence commented that the bill:

… ensures all DFRDB and MSBS veterans are treated in the same, advantageous way for income support purposes, whether they have been affected by the Douglas decision or not.[101]

1.88The Department of Veterans’ Affairs also emphasised:

In almost every case, the amendments in the Bill will result in no change to the rate of income support veterans or their partners are currently receiving.[102]

1.89Additionally, some submitters sought clarification as to the treatment of military invalidity payments in family law and child support matters, including in situations where assets may be split.[103]

1.90The Department confirmed that the ‘amendments in the bill do not change the family law treatment of the affected military invalidity pensions’[104] and that the income support system would continue to respond appropriately to family law orders relating to the affected invalidity payments.[105]

1.91Of broader changes as a result of the bill, the Department of Veterans’ Affairs commented:

The changes in this Bill do not alter the income tax benefits of the Douglas decision for veterans and/or their partners. The amendments make no changes to family assistance law and will have no impact on a veteran’s adjusted taxable income or their eligibility for payments that depend on it.[106]

Other issues

1.92Some submitters expressed concerns with broader issues related to the taxation of invalidity superannuation payments, which are beyond the scope of the inquiry.[107]

1.93At the hearing, Mr Flavel from the Department acknowledged the broader concerns raised by some submitters and clarified that the bill:

… doesn't make changes to tax treatment, to issues related to family law or to other things. Those are all quite legitimate issues for people to raise—I acknowledge that—but they're actually not dealt with in this bill. This bill is simply seeking to provide certainty over the way that these payments are treated under the social security and veterans entitlements acts, to ensure that fairness is maintained in the system by doing that in a way that is consistent with the way these have always been treated.[108]

Committee view

1.94Over the course of the inquiry, the committee heard the views of a number of inquiry participants on a range of topics, including veteran superannuation benefits and the origins of invalidity payment policy. While the committee acknowledges these views, they are beyond the scope of this inquiry which relates only to the Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

1.95The committee recognises that the proposed amendments to the Social Security Act and Veterans’ Entitlements Act outlined in the bill seek to address an issue that has arisen as an unexpected consequence of the Douglasdecision.

1.96The committee is of the view that the proposed amendments will have a positive impact on the majority of Australian veterans who are receiving a military invalidity payment through the DFRDBS and MSBS schemes and are also seeking income support through the social security system.

1.97In particular, the committee notes that the proposed amendments will provide greater clarity and a solid legal foundation for individuals who are in receipt of these payments, as well as codifying the original policy intent in both the Social Security and Veterans’ Entitlements Acts prior to the unexpected result of Douglasdecision.

1.98The use of the means test is a foundational element of the Australian social security system which ensures individuals receive an appropriate rate of income support targeted to those who need it most. The passage of this bill would ensure that the policy intent of the affected superannuation schemes would be correctly classified in relation to means test assessments.

1.99The operation of the validation provisions within the proposed legislation are a sensible inclusion to ensure consistency across all claims made and that decisions made in line with the original policy intent will be deemed valid. The committee is assured by the fact that this will not impact on the right of veterans to appeal or review processes if necessary.

1.100The implementation of delegated authority to the Secretary of the Department of Social Services and the Repatriation Commission through legislative instrument will also enable any similar issues that arise in the future with certain incapacity payments provided by legacy superannuation schemes to be addressed on an as needed basis.

1.101The committee acknowledges that a small cohort of 850 veterans will be impacted by these changes and that the majority of these veterans will experience no change to their rates of payment. While the committee notes that there will be less than five individuals who will receive a lessened rate of payment, the committee also recognises that these individuals will revert to a rate of payment consistent with other veterans on the same schemes and will not occur any debts as a result of previous payments. The committee is reassured that Services Australia will contact these individuals as it is important that these changes are fully explained to them. The committee also encourages the Department to clearly communicate the intent and effect of the Bill to the broader cohort of 850 veterans and families even if they will experience no change to their current rates of payment. This would alleviate any confusion or ambiguity about the intent and impact of the Bill.

1.102 The committee recommends that the Senate pass the bill.

Senator Marielle Smith

Chair

Footnotes

[1]House of Representatives Votes and Proceedings, No. 105, 15 February 2024, p. 1341.

[2]Journals of the Senate, No. 101, 29 February 2024, p. 2027. See also: Senate Standing Committee for the Selection of Bills, Report No. 2 of 2024,29 February 2024, [p. 3].

[3]Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024, Explanatory Memorandum (Explanatory Memorandum), p. 2.

[4]Explanatory Memorandum, p. 2.

[5]Explanatory Memorandum, p. 2–3.

[6]Explanatory Memorandum, p. 3.

[7]Department of Social Services, Submission 4,p. 4.

[8]The Hon. Amanda Rishworth MP, Minister for Social Services, House of Representatives Hansard, 15February 2024, pp. 2–3.

[9]The Hon. Amanda Rishworth MP, Minister for Social Services, House of Representatives Hansard, 15February 2024, p. 3.

[10]Department of Social Services, Submission 4,p.2.

[11]Department of Social Services, Submission 4,p. 2.

[12]Department of Social Services, Submission 4,p. 2.

[13]Department of Social Services, Submission 4,p. 2.

[14]Department of Social Services, Submission 4,p. 2.

[15]Explanatory Memorandum, p. 2

[16]Treasury Laws Amendment (2022 Measures No. 4) Bill 2022, Explanatory Memorandum, p. 160.

[17]Elo Guo-Hawkins, Julie Sienkowski, Jaan Murphy and Howard McLean, Treasury Laws Amendment (2022 Measures No. 4) Bill 2022, Bills Digest No. 42, 2022–2023, Parliamentary Library, Canberra, 2023, p. 29.

[18]Treasury Laws Amendment (2022 Measures No. 4) Bill 2022, Explanatory Memorandum,p. 160

[19]Treasury Laws Amendment (2022 Measures No. 4) Bill 2022, Explanatory Memorandum,p. 160.

[20]The Hon. Amanda Rishworth MP, Minister for Social Services, House of Representatives Hansard,15 February 2024, p. 2.

[21]The Hon. Amanda Rishworth MP, Minister for Social Services, House of Representatives Hansard,15 February 2024, p. 2.

[22]Explanatory Memorandum, p. 3.

[23]The Hon. Amanda Rishworth MP, Minister for Social Services, House of Representatives Hansard, 15 February 2024, p. 2.

[24]Department of Social Services, Submission 4,p. 6.

[25]Department of Social Services, Submission 4,p. 6.

[26]Department of Social Services, Submission 4,p. 3.

[27]Explanatory Memorandum, p. 3.

[28]Explanatory Memorandum, p. 4.

[29]Proposed subsection 9(1G) of the Social Security Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[30]Explanatory Memorandum, p. 4.

[31]Proposed amendments to subsection 9(1), subsection 23(1) and subsection 1118(1A) (subparagraph (a)(i) of the definition of partially asset-test exempt income stream) of the Social Security Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[32]Proposed subsection 9(3) of the Social Security Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[33]Explanatory Memorandum, p. 4.

[34]Proposed section 9BB of the Social Security Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[35]Proposed amendment to subsection 9(1), subsection 23(1), subsection 1098(1) and subsection 1118(1A) of the Social Security Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[36]Proposed section 1099AAA of the Social Security Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[37]Proposed subsection 1099AAA(1) of the Social Security Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024. The annual payment is defined as ‘the amount payable to the person for the year under the income stream’. The special reduction amount is defined as ‘the sum of the amounts that would be the tax free components, worked out under Subdivision 307-C of the Income Tax Assessment Act 1997, of the payment received from the military invalidity pension income stream during the year, if it were assumed that the military invalidity pension income stream is a superannuation income stream within the meaning of that Act’.

[38]Explanatory Memorandum, p. 5.

[39]Proposed subsection 1099AAA(2) of the Social Security Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[40]Explanatory Memorandum, p. 5.

[41]Explanatory Memorandum, p. 6.

[42]Explanatory Memorandum, p. 6.

[43]Explanatory Memorandum, p. 6. See also: proposed subparagraph 1099DB(1)(c) of the Social Security Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[44]Proposed subsection 5J(1EA) of the Veterans’ Entitlements Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[45]Proposed subsection 5J(1FA) of the Veterans’ Entitlements Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[46]Explanatory Memorandum, p. 7.

[47]Department of Social Services, Submission 4,p. 4.

[48]Proposed new subsection 5JBB of the Veterans’ Entitlements Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[49]Proposed amended subsection 5Q(1) of the Veterans’ Entitlements Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[50]Explanatory Memorandum, p. 8.

[51]Proposed subsection 46VAA of the Veterans’ Entitlements Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[52]Explanatory Memorandum, p. 8.

[53]Explanatory Memorandum, p. 8.

[54]Explanatory Memorandum, p. 8.

[55]Explanatory Memorandum, p. 8. See proposed amendments to subsections 46ZA(1) and 46ZA(2) of the Veterans’ Entitlements Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[56]Explanatory Memorandum, p. 8. See proposed subparagraph 46ZA(1)(c) of the Veterans’ Entitlements Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[57]The Hon. Amanda Rishworth MP, Minister for Social Services, House of Representatives Hansard,15 February 2024, p. 3.

[58]Explanatory Memorandum, p. 8. See proposed amendments to subsection 52(1AA) (subparagraph (a)(i)) and proposed section 5JBB of the Veterans’ Entitlements Act, Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024.

[59]Explanatory Memorandum, p. 9.

[60]Explanatory Memorandum, p. 9.

[61]Explanatory Memorandum, p. 9.

[62]Explanatory Memorandum, p. 9.

[63]Explanatory Memorandum, p. 9.

[64]Explanatory Memorandum, pp. 9­–10.

[65]Explanatory Memorandum, pp. 9­–10.

[66]Explanatory Memorandum, p. 10.

[67]Explanatory Memorandum, p. 10.

[68]The Hon. Amanda Rishworth MP, Minister for Social Services, House of Representatives Hansard,15 February 2024, p. 3.

[69]Department of Social Services, Submission 4,p. 5.

[70]Department of Social Services, Submission 4,p. 5.

[71]Department of Social Services, Submission 4, pp. 5­–6.

[72]Explanatory Memorandum, p. 1.

[73]Explanatory Memorandum, p. 13.

[74]Explanatory Memorandum, p. 13.

[75]Parliamentary Joint Committee on Human Rights, Scrutiny report 2 of 2024, p. 5.

[76]Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 3 of 2024,28 February 2024, p.46.

[77]Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 3 of 2024,28 February 2024, p.47.

[78]Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 5 of 2024,28 February 2024, p.52.

[79]Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 5 of 2024,28 February 2024, p.52.

[80]Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 5 of 2024,28 February 2024, p.53.

[81]Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 5 of 2024,28 February 2024, p.53.

[82]See, for example, Department of Veterans’ Affairs, Submission 7,pp. 3 and 5; The Returned and Services League of Australia, Submission 2,[p. 1];Defence Force Welfare Association, Submission 3, p. 3; Department of Defence, Submission 5,p. 2.

[83]Department of Defence, Submission 5,pp. 2–3.

[84]Defence Force Welfare Association, Submission 3,p. 2.

[85]Department of Defence, Submission 5,p. 2.

[86]Department of Social Services, answers to questions on notice, 28 March 2024 (received 5 April 2024).

[87]Department of Defence, Submission 5,p. 2.

[88]The Returned and Services League of Australia, Submission 2,[p. 1].

[89]Department of Social Services, Submission 4,p. 4.

[90]Department of Social Services, Submission 4,p. 4.

[91]Defence Force Welfare Association, Submission 3, p. 3.

[92]Department of Defence, Submission 5,p. 2.

[93]Department of Veterans’ Affairs, Submission 7,p. 4.

[94]Mr Luke Brown, Acting First Assistant Secretary, Policy Division, Department of Veterans' Affairs, Committee Hansard,27 March 2024, p. 11.

[95]See for example, The Returned and Services League of Australia, Submission 2,[p. 1]; Defence Force Welfare Association, Submission 3, p. 2.

[96]The Returned and Services League of Australia, Submission 2,[p. 1].

[97]Defence Force Welfare Association, Submission 3, p. 2.

[98]Department of Social Services, Submission 4,p. 6.

[99]Department of Social Services, Submission 4,p. 6.

[100]Department of Social Services, answers to questions on notice, question 7, 28 March 2024 (received 5 April 2024).

[101]Department of Defence, Submission 5,pp. 2–3.

[102]Department of Veterans’ Affairs, Submission 7,p. 4.

[103]Defence Force Welfare Association, Submission 3, p. 3. See also The Returned and Services League of Australia, Submission 2,[p. 1].

[104]Department of Social Services, Submission 4,p. 7.

[105]Department of Social Services, Submission 4,p. 7 and Department of Social Services, answers to questions on notice, question 4, 28 March 2024 (received 5 April 2024).

[106]Department of Veteran’s Affairs, Submission 7,p. 5.

[107]See, for example, TPI Federation Australia, Submission 1,pp. 1 and 2; Peter Thornton and Bradley Campbell, Submission 6,p. 2.

[108]Mr Matt Flavel, Deputy Secretary, Social Security, Department of Social Services, Committee Hansard,27 March 2024, p. 13.