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10.2 Reserve earnings

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Last amended 
10 August 2017

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. 

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. 

Where NWE/NE is deemed using the 'daily Reserve rate x 7', all of the weekly compensation payment is 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.