(1) The rate determination for Mr Lightner's disability support pension (DSP) from 31 January 2025 is set aside;

(2) Centrelink is to recalculate Mr Lightner's correct entitlement to DSP on the basis that his military invalidity pension is a military invalidity pension for the purposes of subsection 9(1G) of the Social Security Act 1991 (the Act) and therefore subject to the provisions in section 1099AAA of the Act.

SOCIAL SECURITY - Disability Support Pension - rate reduction - Military and Benefit Scheme - classified as income under the ordinary income test - military invalidity pension income stream instead - total gross with no deductions allowed was incorrect - decision under review set aside

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been omitted from this decision and replaced with generic information pursuant to subsection 201(1A) of the Social Security (Administration) Act 1999.

1. This review is about whether the rate of disability support pension (DSP) paid to Mr Lightner was reduced correctly.
2. Mr Lightner has been in receipt of DSP since 6 January 2023.
3. On 31 January 2025, Mr Lightner was notified that a Centrelink employee had determined, based on data match information received from [Superannuation fund 1], that he was in receipt of a defined benefit paid by the Military and Benefit Scheme from 10 June 2020 and that, as a consequence, his rate of DSP was reduced.
4. Mr Lightner requested a review of the original decision on 3 February 2025.
5. The decision was referred to an authorised review officer, who affirmed the decision on 11 March 2025.
6. On 20 March 2025, Mr Lightner applied to the Administrative Review Tribunal (the Tribunal) for an independent review of Centrelink's decision.
7. On 27 June 2025 the Tribunal conducted a hearing by conference telephone at which Mr Lightner gave evidence under affirmation. The Tribunal had before it a bundle of documents provided by Centrelink (275 pages), which had been provided to Mr Lightner prior to the hearing, as well as documents submitted by Mr Lightner (A1 to A20).

1. The relevant legislation is contained in the Social Security Act 1991 (the Act) and the Social Security (Administration) Act 1999 (the Administration Act).
2. The issue which arises in this case is whether Mr Lightner's rate of DSP was reduced correctly from 31 January 2025.

Was Mr Lightner's rate of DSP was reduced correctly from 31 January 2025?

1. The Centrelink authorised review officer indicated that the reason for the change in Mr Lightner's rate of DSP was that Mr Lightner's MilitarySuper Pension was being treated by Centrelink as a defined benefit, pending further advice.[1]
2. A person's rate of DSP is calculated pursuant to section 1064 of the Act with reference to their income and their assets. It includes a test known as the 'ordinary income test'. Note 2 to point 1064 E-1, however, stipulates that the application of the ordinary income test is affected by the provisions concerning income from income streams in Division 1C of Part 3.10 of the Act.
3. Ordinary income is defined in section 8 of the Act as 'income that is not maintenance income or an exempt lump sum'.
4. Mr Lightner's submissions with respect to what he believes are the review officer's legal errors with respect to the classification of his military pension as income rather than as a military invalidity pension income stream bear quoting in full:

The ARO wrongly assessed my MSBS Class A pension as a "defined benefit income stream" with $0 tax -free component, counting my full gross income ($2,979.06 fortnightly) instead of $801.29 (gross minus $2,177.77 tax -free). They claim the *Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Act 2024* (SSAct 2024) is a "Bill" still pending - it's law since 30 May 2024 (C2024A00030). SSAct 2024 classifies my pension as a "military invalidity pension income stream" (SSAct 1991, Section 1099AA), not a defined benefit stream, and excludes my tax-free component (the "special reduction amount," $2,177.77 fortnightly, per ITAA 1997, Subdivision 307-C). The *Guide to Social Security Law* (DSS Section 4.9.2.30) confirms: "These invalidity benefits are military invalidity pension income streams under the SSAct. They are NOT defined benefit income streams." Minister Rishworth's Second Reading Speech (15 February 2024, House of Representatives) and Senator McAllister's (28 February 2024, Senate) confirm SSAct 2024's intent: exclude the tax -free component while maintaining my DSP rate ($806.59, as Centrelink accepted in 2023), effective 31 May 2024. The ARO's records also claim DSS advice without references - this lacks transparency and contradicts SSAct 2024.[2]

1. The Tribunal has considered and accepts Mr Lightner's submissions with respect to the amendments made to the Act through the Social Services and Other Legislation Amendment (Military Invalidity Payments Means Testing) Act 2024 and notes that these received Royal Assent on 30 May 2024. The commencement date of the amendments was 31 May 2024.
2. Part 3.10 of the Act contains general provisions relating to the ordinary income test, which is used in calculating a person's rate of DSP. Section 1099AAA (which was inserted into the Act in Division 1C of Part 3.10 by the amendments referred to in paragraph 14 above) provides that where an income stream is a military invalidity pension income stream, the annual amount the person is taken to receive from the scheme is to be calculated by deducting the special reduction amount from the annual payment. 'Annual payment' is defined in this section as the amount payable to the person for the year under the income stream; '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 payments 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.
3. It remains, therefore, for the Tribunal to determine whether Mr Lightner's MilitarySuper invalidity benefit meets the definition of a military invalidity pension income stream for the purposes of the Act.
4. A military invalidity pension income stream is defined in subsection 9(1G) of the Act as follows:

(1G) An income stream is a military invalidity pension income stream if:

(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.

1. A letter from [Superannuation fund 1] to Mr Lightner, dated 22 June 2021, says in part:

[Superannuation fund 1] has reviewed the information you have provided and your MilitarySuper invalidity benefit is considered to meet the criteria of a disability superannuation benefit with effect from 6 May 2021.

We will apply a 15% tax offset to the taxable-taxed component of your invalidity benefit from the next available payday. We'll write to you about your new net fortnightly entitlement shortly.

[Superannuation fund 1] will also advise the Australian Taxation Office (ATO) that your invalidity benefit is considered a disability superannuation benefit for tax purposes. This will be taken into account for any remediation action taken by the ATO in future.

Following the Full Federal Court judgment of Commissioner of Taxation v Douglas [2020] FCAFC 220, it was determined that certain invalidity benefits should be taxed as a superannuation lump sum benefit, and not as a superannuation income stream. You can find out more about this on our website.

[Superannuation fund 1] is working with the ATO to apply this change to impacted benefits as soon as possible. Until this change is implemented, tax will continue to be withheld from your benefit as though it was a superannuation income stream. However, [Superannuation fund 1] will report your benefit as a superannuation lump sum benefit to the ATO at the end of this financial year so any required remediation can take place.

Once the change has been implemented, your benefit will be taxed as a superannuation lump sum, and you will be entitled to a disability tax-free component rather than a 15% offset.[3]

1. An appendix to the 22 June 2021 letter provides the evidence that [Superannuation fund 1] has relied upon in determining that Mr Lightner's superannuation benefit is to be treated as a disability superannuation benefit.[4]
2. The Tribunal notes that the letter sent to Mr Lightner on 22 June 2021 indicates that the full name of MilitarySuper is "Trustee of the Military Superannuation and Benefits Scheme".
3. The Tribunal finds on the basis of the evidence set out in paragraphs 17, 18, 19 and 20 that Mr Lightner's MilitarySuper invalidity benefit meets the definition of a military invalidity pension income stream for the purposes of subsection 9(1G) of the Act.
4. From the finding that Mr Lightner's MilitarySuper Invalidity Benefit meets the definition of a military invalidity pension for the purposes of subsection 9(1G) of the Act, it follows that the authorised review officer's treatment of this income stream as 'total gross with no deductions allowed'[5] was incorrect.
5. The Tribunal also observes that the legislation and policy considered in Centrelink's internal review did not include any reference to section 1099AAA of the Act or Topic 4.9.2.30 of the Social Security Guide.
6. The Tribunal will therefore set aside Centrelink's decision and remit the matter to Centrelink for reconsideration in accordance with the Tribunal's findings in paragraph 21 and 22.
7. Since Mr Lightner applied for a review of Centrelink's original decision and review decision within 13 weeks, the Tribunal does not need to consider any modification to the date of effect of its decision under section 147 of the Administration Act.

The decision under review is set aside and the matter is sent back to the Chief Executive Centrelink for reconsideration in accordance with the directions that:

(1) The rate determination for Mr Lightner's disability support pension (DSP) from 31 January 2025 is set aside;

(2) Centrelink is to recalculate Mr Lightner's correct entitlement to DSP on the basis that his military invalidity pension is a military invalidity pension for the purposes of subsection 9(1G) of the Social Security Act 1991 (the Act) and therefore subject to the provisions in section 1099AAA of the Act.