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10.2 Reserve earnings

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Last amended 
25 September 2019

Incapacity payments for loss of part-time Reserve income are not taxable. This is because the payments retain the original nature of the salary payment (which is non-taxable).  In other words, Reserve earnings are not taxable so compensation for loss of ability to earn in the Reserve is also considered not to be taxable. 

Where NWE/NE is deemed using the 'daily Reserve rate x 7,' all of the weekly compensation payment is not taxable.

While the Reserves component of an incapacity payment is tax-free, any component for loss of earnings from civilian employment is subject to tax.  Both civilian and reserves earnings combined, form a single amount of NWE/NE, only part of which is taxable. For example, if 80% of a person's NWE/NE is from civilian earnings, then 80% of the weekly compensation is considered taxable, and the remaining 20% is non-taxable.

Where a Reservist was injured during a period of full-time service their NWE is based on their full-time ADF rate of pay.  Incapacity payments made in these circumstances are also taxable.