Superannuation benefits may be paid in the form of a pension, a lump-sum benefit, or a combination of both pension and lump-sum. Incapacity payments are reduced dollar for dollar by the Commonwealth-funded portion of the pension (a weekly amount). Lump-sum benefits are converted to a weekly amount before incapacity payments are reduced dollar for dollar by the Commonwealth-funded portion.
If a person has an overpayment as a result of receiving incapacity payments and having an entitlement to superannuation for the same period, the overpaid incapacity amount can be recovered from the Commonwealth Superannuation Corporation (CSC). A new 'transitional' approach to recover these overpayments has been developed by DVA, the Australian Taxation Office (ATO) and CSC. The transitional approach should be applied to cases from July 2019 and is to be applied until a final process is established between the three agencies. The transitional approach is applicable to incapacity payment calculations under both MRCA and DRCA.
Broadly, under the transitional approach DVA will recover the gross incapacity overpayment from the net CSC pension in arrears payment (overpayments within the same financial year can be recovered at the net amount). The CSC will first repay to DVA any 'pre 2005' amount, and apply a new (more beneficial) tax rate to any remaning arrears.
For cases where the CSC arrears is not enough to repay the full incapacity overpayment, DVA is required to recover the remaining overpayment from the veteran. Once the overpayment is repaid in full or DVA is satisfied repayment of the full amount will occur under a formal repayment arrangement, the ATO will reassess the tax paid in previous financial years and refund any overpaid tax to the veteran.
The relevant procedures are provided in the Incapacity Procedures Manual Ch 5 in CLIK and can be accessed here [1].
When a person has received both incapacity payments from DVA and a retrospective supeannuation pension (an arrears payment) from the CSC they may incur a debt to DVA. Once the debt is repaid the person is able to seek an amendment of their tax and may receive a refund.
Three different scenarios may occur:
To facilitate a tax amendment DVA is required to furnish the ATO with either;
There is an element of risk to being satisfied that the debt will be repaid as compared to being certain it has been repaid after the fact of repayment. The intent of (2) is to allow the veteran to access a refund sooner (even though the debt has not been fully repaid) and potentially use that refund to repay the remaining debt owing to DVA. However, DVA cannot compel a person to pay a debt from a refund or garnish a refund directly.
There are a variety of mechanisms available to DVA to recover a debt. These include recovery from DVA payments an recovery directly from the person. DVA cannot garnish wages or tax refunds to recover a debt.
This will vary case by case and depend on the amount of the debt outstanding i.e. smaller amounts would be more likely to be recovered. It is anticipated that most debts could be recovered in full.
Factors to consider in establishing that the repayment of the full amount will occur under a formal repayment arrangement include;
If the person has agreed to repay the debt from an outstanding PI lum sum, delegates would also need to consider how many PI points the person currently has i.e. high/maximum points already will limit additional payments.
Seeking a tax amendment for the full debt amount repaid is simpler for the veteran rather than seeking a tax amendment for the portion of the debt repaid by CSC and then separately seeking an amendment for the portion of the debt repaid or under repayment by the veteran. While the preference is for a single amendment, it remains open to the veteran to seek multiple amendments from the ATO. In this case multiple tax amendment letters may be sent to the ATO.
The tax amendment letter can be sent for the portion of the debt repaid by the CSC before the remainder of the debt is repaid. In this case that repayment should be apportioned back over financial years, starting at the latest year. The veteran may use the refund to repay DVA, subsequently generating additional amendments. Otherwise an amendment should only be sought when the remaining debt is repaid. This will lead to a higher administative cost across agencies should multiple amendments be undertaken. It may also restrict the veterans ability to actually repay the debt if the amendment is not done for the full amount.
A person may have their superannuation benefit split and part of the benefit paid to their former spouse as a result of a family law settlement. Following a family law settlement, the member’s superannuation entitlement is reduced in line with the amount paid to their former spouse.
The policy prior to the 15 December 2016 was to reduce a person’s incapacity payment by the full (pre-settlement) amount of any Commonwealth-funded superannuation benefit that is derived from the ADF employment that gave rise to the incapacity. This policy has now ceased and should not be applied regardless of the date of the family law settlement.
A person's incapacity payment can only be reduced by the Commonwealth-funded superannuation amount the person actually receives. Following a family law settlement only the reduced (post-settlement) amount of their Commonwealth-funded superannuation benefit (derived from the ADF employment that gave rise to the incapacity) can be included in calculations. The amount the person receives is as advised by the CSC. Any amount of superannuation paid to the spouse is no longer included in calculations.
Delegates are not expected to seek out and correct calculations where the pre-settlement superannuation amount has been held prior to 15 December 2016, but should correct these calculations as they are identified i.e. during the regular review process. For example, in a case where the pre 15/12/2016 policy had been applied to a family law settlement in 2013, incapacity payments will need to be recalculated back to the date of the family law settlement.
The 'current (CPI-adjusted)’ weekly amount of a person's superannuation pension is the amount of pension currently paid to the person, and includes all indexation adjustments to the relevant date. Commonwealth superannuation pensions, including DFRDB, MSBS and ADF Cover pensions, are indexed to protect the value of the pensions against cost/price inflation in the economy. Until 2001 pensions generally were increased each year on the first payday in July, with the increase taking effect from the first day of that pay period (e.g. in late June). The increase was an amount based on upward movement of the Consumer Price Index for the 12 months ending on 31 March of that year.
After July 2001, the Commonwealth-funded portion of all superannuation pensions paid by the Commonwealth Superannuation Corporation (formerly ComSuper) are adjusted twice a year – in January and June/July each year.
The 'original’ weekly amount of a person's superannuation pension is the amount of pension initially approved by the Commonwealth Superannuation Corporation (CSC) upon retirement from service or at the time of the date of effect of any reclassification.
A DFRDB superannuation pension can be commuted (converted) in part to a lump sum benefit. The person's superannuation entitlement after the commutation is regarded as comprising part pension and part lump sum.
Until 24 December 1992, the DRCA did not provide for the situation where a person received both pension and a lump sum (i.e. S21A). In such cases, the lump sum is to be ignored and S20 is applied.
Where the person retired after 24 December 1992, S21A applies and both the Commonwealth-funded portion of the pension and the lump sum are to be taken into account in the calculation of incapacity payments.
In the case where part of a pension entitlement is commuted to a lump-sum, and the balance of the superannuation benefit is paid at a reduced rate of pension, the reduced rate of pension is the 'original’ weekly amount.
Under the DRCA, the Commonwealth-funded portion of the lump-sum superannuation benefit is multiplied by a set interest rate and then divided into notional weekly payments.
For incapacity calculations prior to 27 April 2007, the superannuation lump-sum amount is multiplied by 10% and divided by 52 (or divided by 520) to establish an equivalent weekly amount.
For incapacity calculations on or after 27 April 2007, the superannuation lump-sum amount is multiplied by a rate in line with the 10 year Government bond rate and divided by 52 to establish an equivalent weekly amount. The rate is set by the Minister for Employment (who has primary responsibility for SRCA) by legislative instrument. A new rate is applicable from 1 July each year and is available via CLIK (the ‘specified weekly interest on lump sums’ rate).
The date the person discharges has no influence on which interest rate is used. The interest rate used for the calculation is the rate that is applicable for the period of incapacity.
Under the MRCA, an actuary table, prepared by the Australian Government Actuary, is used to convert the Commonwealth-funded portion of lump sum superannuation benefit to an equivalent weekly amount that can then be used to calculate incapacity payments (or SRDP). The actuary tables are available via CLIK. http://auth-clik.dvastaff.dva.gov.au/military-compensation-mrca-manuals-and-resources-library/actuary-tables-used-age-adjusting-lump-sum-payments [2]
For the purposes of section 135 and 136 the date used to determine which table is applicable, should be the latter of:
a) the date the person receives the lump sum (which is the first date section 135/136 is applicable), or;
b) the date from which the person is eligible to receive incapacity payments.
In situations where a person is paid incapacity payments retrospectively and for a period prior to receipt of the superannuation lump sum, the appliable date is that on which the lump sum was received, and the applicable section of the Act changes.
9.2.4.1Example 1 - Converting the DRCA superannuation lump-sum benefit to a weekly amountA person receives a lump-sum superannuation benefit of $156,000. The current ‘specified weekly interest rate on lump sums’ is 3.26% (rate as at 1/7/15). Equivalent weekly amount = $156,000 x 3.26% / 52 = $97.80 Example 2– Converting the MRCA superannuation lump-sum to a weekly amountA 55 year old male receives a lump-sum benefit of $156,000. According to the current Actuary table his age based number is 737.2 (age next birthday is 56). Equivalent weekly amount = $156,000/737.2 = $211.61 |
Links
[1] http://auth-clik.dvastaff.dva.gov.au/military-compensation-reference-library/incapacity-procedures-manual/5-commonwealth-superannuation-corporation-csc-arrears-advices
[2] http://auth-clik.dvastaff.dva.gov.au/military-compensation-mrca-manuals-and-resources-library/actuary-tables-used-age-adjusting-lump-sum-payments