MSBS Invalidity: what it means for you and your family

But that purpose doesn’t come without sacrifice.

Sometimes that sacrifice results in a medical discharge from service, and somewhere in that process, a decision comes through from CSC outlining an MSBS Invalidity classification. But it’s never just a superannuation event. It arrives with a set of questions that land all at once.

There are questions about where they’ll live now that a posting cycle and a service address no longer exist. There’s a DVA claim to navigate, often running in parallel with the CSC process, with its own forms and its own timelines. There’s the work of making sure the right services and supports are in place, for the member and for the family around them, at a time when it’s hard to know what to ask for, or who to ask.

And underneath all of it sits the bigger, quieter question of what life and purpose look like now, in a chapter that was never planned for and has never been explored.

For most people, these questions are being asked for the very first time. They’re daunting, and the answers aren’t always known.

Then there are the practical realities that don’t wait. Funding day to day life. School fees and the things the kids had been counting on. Keeping the family’s life moving forward in a way that feels steady, rather than something that has to be rebuilt from scratch.

For many members, that’s what the MSBS invalidity benefit becomes. The foundation their household income and their family’s future now rest on if they’re unable to return to work.

What you’ll receive, and how it’s worked out

CSC assesses the level of incapacity for civilian employment and classifies it into one of three groups, and that assessment drives how the benefit is calculated.

• Class A (60% or more incapacity): A CPI indexed Invalidity Benefit calculated as though the member had remained in the scheme until their compulsory retiring age, using their final average salary at discharge.
• Class B (30–59% incapacity): The greater of half the notional Class A pension, or the pension based on actual years of service.
• Class C (less than 30% incapacity): A lump sum of the pre July 1999 member benefit, with the remainder preserved until preservation age.

This isn’t necessarily fixed. If you’re Class A or B, CSC can review your position periodically until age 55, and you also have the right to request a review yourself if your condition changes, providing further evidence before any decision is finalised.

If you’ve already left, it may not be too late

Not every member who could have qualified for an invalidity benefit receives one at the time. Some separate from the ADF for other reasons while carrying a medical condition that was never formally assessed against the invalidity criteria.

CSC has a process for this called retrospective invalidity. Under Rule 30 of the MilitarySuper Trust Deed, CSC can consider whether a former member who separated for reasons other than invalidity should instead be treated as though they had separated on invalidity grounds. The test is whether grounds existed at the time of separation, based on the medical evidence, not on whether the condition was service related. This makes it a different question to a DVA claim, which asks whether your condition was caused by your service.

If approved, the benefit is backdated to your separation date, which can mean a significant arrears payment.

There are a few things worth considering alongside that. How the benefit interacts with any DVA payments you receive or have received previously, including how arrears are treated. Whether there are Centrelink or Child Support implications. And whether prior year tax returns would need to be amended.

Understanding how these pieces fit together for your circumstances is part of making an informed decision about whether to apply.

How the benefit is taxed

What you’re entitled to is one question. How that benefit is taxed is a separate question again, and it’s one that often goes unasked.

In 2020, the Federal Court handed down a decision, Commissioner of Taxation v Douglas [2020] FCAFC 220, that changed how certain veteran invalidity pensions are treated for tax purposes, retrospectively to 1 July 2007. Pensions previously taxed as an income stream are, for many veterans, now treated as a superannuation lump sum, generally resulting in less tax being paid.

If your DFRDB or MSBS invalidity pension began on or after 20 September 2007, the Douglas Decision may already apply to you, applied automatically by the ATO when your return is assessed. For the small number of veterans who would be worse off, a tax offset, the VSTO, ensures nobody pays more than they would have otherwise.

Whether a pension has been assessed as a Disability Superannuation Benefit (DSB) is different again. This is a distinct tax classification, and the test is a stricter one than the MSBS incapacity assessment. It requires two legally qualified medical practitioners to certify that, because of the member’s condition, they’re unlikely to ever work again in a role they’re reasonably qualified for. Not every invalidity pension will meet it.

Unlike the Douglas Decision, it isn’t automatic. Where the circumstances do meet the test, medical evidence needs to be provided to CSC, and where it’s confirmed, it can have a profound impact on the tax outcomes for the member.

You don’t need to navigate this alone

None of this is simple, and none of it should be rushed.

What you’re entitled to, how it’s taxed, and what’s available to you can differ substantially depending on your circumstances. For a lot of families, this is what their financial security now rests on, and it deserves the time and care to get it right.

Some members want to understand every detail themselves. Others would rather someone else carry it while they focus elsewhere. Both are completely reasonable, and neither should mean working through it on your own.

If you’re navigating an MSBS invalidity benefit, or supporting someone who is, our journey together starts by listening to you. Not to your numbers, but to what’s happening and what matters most. At Bravium we work with ADF members and their families through exactly this. Reach out whenever you’re ready.

General information only. It does not take account of your objectives, financial situation or needs. MSBS rules, invalidity classifications and pension calculations are set by the scheme’s governing legislation and can change; confirm your own position with CSC or seek personal advice before acting.