In QWYN v CMR [2025] ARTA 83 (5 February 2025), a taxpayer aged 44 received an invalidity retirement certificate from the Public Sector Superannuation (PSS) Scheme pursuant to section 13(1) of the Superannuation Act 1990.
He was retired on the grounds that he was unable to perform his duties because of a physical and mental condition and was entitled to invalidity benefits under the PSS Scheme.
He received a superannuation pension entitlement of $52,128.52 per annum, being paid as regular fortnightly payments of $2,004.94.
His PAYG payment summaries characterised his fortnightly payments as a “superannuation income stream”, however from 30 June 2019 that was changed to be characterised as “capped defined benefit superannuation income stream”.
It was noted in the documents that the tax treatment was always as a superannuation income stream benefit despite the description change, which precluded the taxpayer from a tax-free component concession for disability superannuation benefits under section 307-145 of the Income Tax Assessment Act 1997.
The taxpayer asked the tribunal to rely on two occurrences, including:
1. The decision of the Administrative Appeals Tribunal: Burns and Commissioner of Taxation [2020] AATA 671 (Burns) which states:
The [Tribunal] rightly found that CSC Invalidity pensions should have been treated as ‘disability superannuation benefits’, not ordinary retirement income, which by virtue of that fact, should have attracted less tax being levied.
As such, I [the applicant] here-by retrospectively and from this day forth, object to my CSC pension (i.e. PSS Superannuation Invalidity Benefit) being taxed and treated as ordinary income for taxation purposes, by virtue of the fact that the benefit’s sole purpose was/is to provide a superannuation invalidity benefit for permanent incapacity, as duly certified by two Doctors/Specialists, in accordance with s 307-145 of the Income Tax Assessment Act of 1997; a matter rightly clarified and affirmed under the ruling of Burns v Commissioner of Taxation.
2. A document titled Supplementary Submission To Inquiry – ‘Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Bill 2024, which stated:
MICROSOFT AI COPILOT RESPONSES TO QUESTIONS POSED
(Responses have not been validated by Authors)
The Explanatory Memorandum to the Taxation Laws Amendment (Superannuation) Bill 1992, which introduced the new regime taxing superannuation benefits, states in paragraph 2.20 that
“the Bill will provide a tax rebate of 15 per cent for disability superannuation pensions. This will apply to all disability pensions, irrespective of whether they are paid from a taxed or an untaxed source. The rebate recognises that disability pensions are paid as compensation for the loss of earning capacity and are not merely a form of retirement income.”
Regarding item 2, the tribunal fact-checked the Explanatory Memorandum to the Taxation Laws Amendment (Superannuation) Bill 1992 and could not locate paragraph 2.20.
In its decision, the tribunal said:
It has been noted by others that AI bots are prone to hallucinations. That appears to be what has happened here. It is my assessment that submitting unverified material generated by AI, is not consistent with a party’s duty to use their best endeavours to assist the Tribunal to achieve its statutory objectives. To expect the Tribunal to read and consider material which a party does not know is authentic impedes the Tribunal’s attempts to provide a mechanism of review that ensures that applications are resolved as quickly and with as little expense as a proper consideration of the issues permits.
Furthermore, the tribunal decision did not discuss the Burns case in detail, but instead focused on section 307-145 of the ITAA 1997.
This section, under the title modification for disability benefits, modifies the tax liability for the superannuation benefit by providing a tax-free component calculation but this only applies if the benefit is both a superannuation lump sum and a disability superannuation benefit.
In this instance, the taxpayer persuaded the tribunal that his superannuation invalidity benefits were not a superannuation income stream in accordance with regulation 1.06 of the SIS regulations.
However, the definition of superannuation income stream in sub-regulation 995-1.01(1) of the former Income Tax Assessment Regulations 1997 provided a second limb that included an annuity or pension “within the meaning of the SIS Act”.
In its decision, the tribunal said:
Subsection 10(1) of the SIS Act provided, at the relevant times, as follows:
A pension, except in the expression old-age pension, includes a benefit provided by a fund, if the benefit is taken, under the regulations, to be a pension for the purposes of this Act.
Additionally, the tribunal found that the ordinary “pension” is inclusive and not restricted to being in accordance with regulation 1.06 of the SIS Regulations, and stated:
It appears obvious from the words that what the Parliament did by inclusion of the definition was to take the word pension as the term is ordinarily understood and expand it to include certain benefits which the Act specified would be taken to be pensions for the purposes of the Act. There is no suggestion in the phrasing, that only the benefits taken to be a pension under the Act were to be regarded as pensions.
The tribunal was satisfied that the benefit that the taxpayer received was a pension within the second limb ordinary meaning of the term, accepting that the first limb of the definition of superannuation income stream was not satisfied.
“Once it is established that the payment is not a superannuation lump sum, the concessional tax treatment provided for in section 307-145 is not available. It does not matter that the applicant’s benefit is a disability superannuation benefit,” the decision read.
