Important information about incapacity benefits, including obligations of recipients
What are incapacity payments?
Incapacity payments are compensation for economic loss due to the inability (or reduced ability) to work because of an injury or disease that has been accepted as service related under the Military Rehabilitation and Compensation Act 2004 (MRCA) or the Safety, Rehabilitation and Compensation Act 1988 (SRCA).
Your incapacity payments will be based on the difference between your normal earnings (what you were earning prior to your injury or incapacity) and your actual earnings or ability to earn at the time you are incapacitated for service or work.
Incapacity payments are initially payable at a rate equal to 100% of your normal earnings, less any amount of actual earnings at the time you are incapacitated for service or work and any Commonwealth superannuation payments (pension and/or lump sum) you receive. If you are in payment longer than 45 weeks, your payments will be based on a percentage of your normal earnings (between 75% and 100%, depending on the number of hours you are able to work each week), less your actual earnings (and any Commonwealth superannuation payments). This has the effect of reducing the amount you will receive if you are not working full-time. If you are not working, the rate will reduce to 75% of your normal earnings.
Incapacity payments will affect or be affected by any payments you may be receiving from Centrelink or a Commonwealth-funded superannuation scheme. Other deductions can include Child Support and offsets to benefits received under the Veterans’ Entitlements Act 1986 (VEA) for the same injury or disease that is causing your incapacity. Incapacity payments are subject to review annually and when your circumstances change and are not payable past Age Pension age.
Important Information about receiving incapacity payments
Medical certification required
To receive incapacity payments, you will need to provide current medical certificates when requested, that show:
- whether you are currently incapacitated (i.e., unfit) for work;if you are unfit for work, whether this is because of your accepted service-related condition(s) or some other condition or reason;
- the degree of incapacity, for instance wholly incapacitated for all work, partly incapacitated for all work or capable of working with some restrictions;
- what restrictions you may have in relation to employment; and
- the period you will be unfit for work, including start and end dates.
Medical certification may be provided by your General Practitioner (GP) or treating specialist and must be obtained at the time you were unfit for employment (i.e., backdated certificates for previous periods are not acceptable). Workers compensation medical certificates are preferable.
Please be aware that payments will cease if you do not supply medical certification when requested. Similarly, payments may be suspended if you refuse or fail to undergo a medical examination as directed by DVA without reasonable excuse, or if you obstruct such an examination.
Employment information required
As any actual earnings or ability to earn at the time you are incapacitated for service or work will be relevant to the calculation of your incapacity payments, you will need to inform DVA of all employment undertaken and any income earned while you are receiving incapacity payments. This includes any fulltime, part-time, contract, intermittent or self-employment, including any involvement in a business, whether as a sole trader, partner or in a company structure, whether paid or unpaid. You will need to provide evidence of any earnings from employment (e.g., employment contract, payslips, tax return, profit/loss statement) and advise whenever there is a change to your rate of pay from employment.
Other information required
You are also required to advise DVA if:
- you commence any course of study (whether part-time or full-time);
- you receive any payments from any other source, including Commonwealth superannuation (whether pension, lump sum or a combination of both);
- there is a change in your Commonwealth superannuation payments;
- you change address or contact details; and/or
- you intend to travel for more than 3 months or reside overseas.
As an incapacity payment recipient, you have an ongoing obligation to notify DVA of any changes in your circumstances. You will also be required to complete and return a D1352 Annual Review of Circumstances form when requested. Failure to notify DVA of any of these changes may affect your payments.
If you are receiving incapacity payments, you may be expected to participate in a rehabilitation program initiated by DVA to increase your capacity for suitable employment (a paid job that is suitable to your skills and level of incapacity).
Rehabilitation may consist of return to work and non-return to work assistance depending on your assessed needs, and you will be supported while you undergo the program. If you are assessed as having the potential to return to work your rehabilitation program will include a period of facilitated job search assistance. At the end of your rehabilitation you may be deemed with an ability to earn at the appropriate level if you are not genuinely seeking employment.
Please be aware that if you refuse or fail to participate in a rehabilitation program your incapacity payments may be suspended.
Incapacity payments are income-related payments and are generally taxable. You will need to declare these payments as part of your tax return. At the end of each financial year, you will receive a Payment Summary from the Department of Defence similar to the type of summary you would receive from an employer. This summary will assist you to complete your tax return.
DVA deducts income tax from your payments based on the rate selected when you provided your Tax File Number Declaration. If you wish to change the rate of tax deducted from your payments you will need to provide a new Tax File Number Declaration form. Please note you can only claim the tax-free threshold from one payer at a time; if you are also claiming the tax-free threshold from another payer (such as Commonwealth Superannuation Corporation, Military Super or your employer) you may not be paying enough tax and may have a tax liability at the end of the financial year.
DVA recommends that you consult the Australian Taxation Office or a tax professional to learn more about how receiving incapacity entitlements (including lump sum arrears payments) will affect your tax.