Generally all pay and allowances are tax-free while a member is deployed on warlike service. As incapacity payments retain the same nature of the payments they are compensating, incapacity payments for the loss of pay and allowances while on a period of warlike service are tax-free.
Generally for non-warlike service only allowances are tax-free. Therefore any incapacity payments for loss of deployment or other allowances during a period of non-warlike service are also tax-free.
The tax-free nature of incapacity payments only continues for the loss of pay or allowances during the period of the warlike or non-warlike service. Thereafter any incapacity payments are taxable.
SRCA delegates should access the Service Eligibility Assistant in the CLIK legislation library to assist with verification of warlike or non-warlike service. These determinations are made for the VEA but can assist in the identification of tax-free pay and allowances for service prior to 1 July 2004.