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10. Taxation on Incapacity Payments
In this chapter
Incapacity payments are made as economic loss compensation by way of income replacement, as distinct from non-economic loss compensation such as for permanent impairment. Incapacity payments are generally linked to a person's pre-injury earnings and are taxable at the appropriate marginal tax rate prior to payment to the person. Instructions as noted on a person's Tax Declaration form must be followed.
Incapacity payments are generally taxable because they are income-related payments. However, where the earnings being replaced are non-taxable, so too are the incapacity payments.
Payments for the loss of pay and allowances while on a period of warlike service;
Payment for the loss of allowances while on a period of non-warlike service; and
Payment for the loss of pay or allowances as a part time reservist (except where the part-time reservist is paid based on 7 x their daily rate of pay, see section 10.2).
However if a person's NE is calculated by reference to:
the SRCA ‘minimum earnings provision’ or MRCA ‘national minimum wage’ provision; or
seven times a person's daily rate of Reserve pay;
those incapacity payments are assessable for income tax purposes.