How we calculate incapacity payments

This page provides information about the benefits that may be payable under the Military Rehabilitation and Compensation Act 2004 (MRCA) if you have suffered an injury, disease or illness due to your military service and you are unable to work or have a reduced ability to work.

What are incapacity benefits?

Incapacity benefits are payments 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 MRCA.

Am I eligible for incapacity benefits?

To be eligible you must be:

• a current or former Australian Defence Force (ADF) member (Permanent or Reserve Force), a Cadet, officer or instructor of Cadets or a declared member; and
• have medical certification that you are either totally or partially incapacitated for service or work as a result of a service related injury or disease.

How are incapacity benefits calculated?

Incapacity benefits represent the difference between your normal earnings and your actual earnings at the time you are incapacitated for service or work.

You are entitled to 100% of the difference between your normal earnings and your actual earnings for your first 45 weeks of incapacity. Thereafter, you will be paid the difference between a percentage of your normal earnings and your actual earnings. The percentage will vary between 75% and 100%, depending on the number of hours you are able to work each week. This is known as the adjustment percentage and has the effect of reducing the amount you will receive if you are not working.

How are my ‘normal earnings’ calculated?

If your injury occurred during service in the Permanent Forces, your normal earnings are based on the ADF salary you were receiving at the time of incapacity.

If your injury occurred during Reserve service, your normal earnings are either:

• your Reserve ADF earnings plus your civilian earnings; or
• if you were injured while on continuous full-time service, your normal earnings may be based on your full-time ADF salary.

How are my ‘actual earnings’ calculated?

Your actual earnings are what you are actually earning in employment. In some cases, actual earnings will be zero.

If you are receiving incapacity payments, you may be expected to participate in a rehabilitation program to increase your capacity for suitable employment (a paid job that is suitable to your skills and level of incapacity). For further information, please see Rehabilitation under MRCA.

What if I am self-employed?

If you are self-employed then your earnings may be assessed by reference to the nature of the work you perform and the cost of employing a person to undertake similar work.

How long will I receive incapacity benefits for?

You will receive incapacity benefits for as long as:

• you are incapacitated for service or work; and
• you participate in your rehabilitation; and
• your actual earnings are less than your normal earnings; and
• you are under Age Pension age.

Incapacity benefits are not payable if you are imprisoned.

Are incapacity benefits taxable?

Incapacity benefits are taxable when the income they are intended to replace is taxable. If the income is non-taxable (for example, part-time reserve earnings and some deployment allowances), the incapacity benefit replacing that income will also be non-taxable.

I receive superannuation, will this affect my incapacity benefits?

Incapacity benefits are reduced dollar-for-dollar by the Commonwealth-funded portion of any superannuation you receive. The part of your superannuation benefit which is attributable to your own contributions is not taken into account.

If you receive a Retrospective Invalidity assessment or a reclassification of your Invalidity Benefit through the Commonwealth Superannuation Corporation (CSC) this will affect your incapacity benefits. For further information see Retrospective Invalidity assessment and its impact on incapacity payments. 

I receive a benefit under the VEA, will this affect my incapacity benefits?

If you receive a Disability Compensation Payment under the Veterans’ Entitlements Act 1986 (VEA) for the same injury or disease that is causing your incapacity, your VEA Disability Compensation Payment may be offset (reduced). You cannot be compensated twice for the same incapacity from the same injury or disease.

From 1 July 2026 offsetting of Disability Compensation Payments will change if you are receiving MRCA incapacity payments. If you are receiving both MRCA incapacity payments and a Disability Compensation Payment for the same incapacity, offsetting: 

• does not apply where the Disability Compensation Payment is paid at the general rate; but
• does apply where the Disability Compensation Payment is paid at Above General Rate, including the Special Rate, Intermediate Rate, or Extreme Disablement Adjustment, but the offset is limited to the underlying general rate corresponding to the degree of incapacity.

Offsetting Disability Compensation Payments by DRCA Permanent Impairment lump sums has not changed.

The existing offsetting arrangements apply to any period of incapacity paid before 1 July 2026. This means that any amount of Disability Compensation Payment , including the general rate, may be offset where the MRCA incapacity payments are paid for the same incapacity. Visit the offsetting page for more information.