On 1 July 2026, the Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 (DRCA) and the Veterans’ Entitlements Act 1986 (VEA) were closed to new compensation claims due to changes brought about by the Veterans’ Entitlements Treatment and Support (Simplification and Harmonisation) Act 2025 (VETS Act).
In addition to closing the DRCA and the VEA to new claims, the VETS Act also:
transferred existing recipients of DRCA periodic incapacity payments to receive their entitlement under the MRCA, and
amended the offsetting arrangements for Disability Compensation Payment (DCP) recipients under the VEA who receive periodic incapacity payments under the Military Rehabilitation and Compensation Act 2004 (MRCA) from 1 July 2026.
Prior to 1 July 2026, both the General Rate and Above General Rate (AGR) components of a veteran’s DCP were offset by MRCA incapacity payments. However, new provisions in the VEA which commenced from 1 July 2026, mean that the General Rate portion of DCP will no longer be offset by periodic incapacity payments under the MRCA, from 1 July 2026. The General Rate portion of DCP is simply the rate payable for the underlying impairment points and lifestyle rating.
This means that the only offset that can occur from 1 July 2026 by MRCA incapacity payments, is to the Above General Rate portion of Disability Compensation Payments and only if MRCA incapacity payments are paid in respect of the same incapacity. The offset is also limited such that a veteran’s underlying General Rate must never be offset by those MRCA incapacity payments from 1 July 2026 for the same incapacity. This does not mean that further offsets cannot occur later due to subsequent DRCA permanent impairment lump sums. In other words, the underlying General Rate can be reduced further, only if it is a DRCA permanent impairment lump that causes it to do so.
What AGR rates are impacted by the offsetting arrangements on 1 July 2026?
AGR rates under the VEA which are impacted by the above changes include:
Special (TPI) Rate.
Temporary Special Rate (TTI).
Intermediate Rate.
Extreme Disablement Adjustment (EDA).
What happens with existing offsets before 1 July 2026?
For individuals receiving any Disability Compensation Payments (both AGR and General Rate) before 1 July 2026, the former offsetting rules apply (i.e. both the AGR and General Rate is offset by incapacity payments for the same incapacity) until and including 30 June 2026. The new and more beneficial offsetting rules only apply from 1 July 2026 to veterans who either transition from the DRCA to the MRCA to receive incapacity payments or receive MRCA incapacity payments because of a new claim after 1 July 2026.
The offset by MRCA incapacity payments in all cases will cease once the client either ceases receiving MRCA incapacity payments or reaches age-pension age, which is when they are no longer eligible to receive incapacity payments under the MRCA.
How do delegates determine whether MRCA periodic incapacity payments are for the same incapacity as the VEA DCP from 1 July 2026?
The general policy position is that where a recipient of the Special (TPI) Rate, Temporary (TTI) Rate or Intermediate Rate, also receives MRCA periodic incapacity payments from 1 July 2026, those MRCA periodic incapacity payments will always be for the same incapacity. This is because those old VEA conditions (giving rise to the veteran meeting the old VEA ‘alone test’) became MRCA conditions on 1 July 2026, and the same evidence is used to determine the veteran remains incapacitated due to those conditions.
Note: This policy does not apply to EDA recipients. An offset of the AGR portion can only occur where MRCA periodic incapacity payments are paid for the same incapacity.
Can the General Rate be reduced by other compensation, such as lump sums?
As described earlier, offsetting of Disability Compensation Payments in respect of other sources of compensation, including permanent impairment lump sums under the DRCA or lump sum damages awards by third parties, are not impacted by the 1 July 2026 changes and must continue to apply to the client’s DCP payments for life. This means that a person’s Disability Compensation Payment (including the underlying General Rate) can be reduced further, if it is DRCA permanent impairment lump sums or other lumps sums that cause it to do so. Offsets should be considered in the order that the other compensation is received.
Example 1
A veteran is entitled to MRCA incapacity payments for the period 1 January 2024 to 30 September 2026 and is receiving a VEA DCP at 100% of the General Rate, effective from 1 January 2024. Prior to 1 July 2026, the veteran’s VEA DCP is offset if MRCA incapacity payments are being received for the same incapacity (same medical effects). After 1 July 2026, no offsetting of the VEA DCP will apply in respect of the MRCA incapacity payments being received.
Example 2
A veteran is entitled to DRCA incapacity payments for the period 1 January 2025 to 1 January 2027. The veteran also receives a Special (TPI) Rate under the VEA, effective from 1 January 2025. The veteran’s incapacity payments automatically transitioned to the MRCA on 1 July 2026, and the TPI payment continues for life. Before 1 July 2026, offsetting applies to the full TPI payment (i.e. both the General Rate and AGR portion) until the veteran ceased received DRCA incapacity payments on 30 June 2026. The from 1 July 2026, only the AGR portion of the veteran’s TPI payment is offset by their MRCA incapacity payments. The dollar amount of the underlying General Rate remains unaffected.
Example 3
A TPI recipient receives periodic MRCA incapacity payments of $200 p/f, for the same incapacity.
This amount is less than the AGR portion amount. There are no other offsets in place. From 1 July 2026, the AGR portion of the DCP is offset by $200.
Example 4
A TPI recipient receives periodic MRCA incapacity payments of $1500 per fortnight, for the same incapacity. This amount is greater than the AGR portion amount of the VEA DCP. From 1 July 2026, the AGR is offset, but only by the difference between the general rate and the TPI (i.e. the underlying general rate is retained).
Offsetting quick reference guide
This quick offsetting guide applies in relation to recipients of the VEA Disability Compensation Payment, whose compensation is impacted by existing offsets immediately before 1 July 2026, because of periodic incapacity payments under the DRCA.
Step 1:
Determine whether the DCP recipient is General Rate or Above General Rate.
If General Rate, go to Step 2.
If Above General Rate, go to Step 3.
Step 2:
Is the General Rate offset by DRCA incapacity payments immediately before 1 July 2026?
If yes, the offset by DRCA incapacity payments is removed on 1 July 2026 upon transfer to MRCA incapacity payments. No further offsets because of MRCA incapacity payments can occur to the General Rate, even if there is an increase in the MRCA entitlement later.
If no, no further action is required.
Note: existing offsets by DRCA permanent impairment lump sums remain, for life. The new VEA provisions from 1 July 2026 does not apply to lump sums.
Step 3:
Is the Above General Rate offset by DRCA incapacity payments immediately before 1 July
2026, resulting in an offset greater than the difference between the Above General Rate and
the underlying General Rate resulting from the determined impairment points and lifestyle
rating?
If yes, go to Step 4.
If no, go to Step 5.
Step 4:
As the Above General Rate is offset by DRCA incapacity payments immediately before 1 July
2026, the ongoing offset from 1 July 2026 upon transfer to the MRCA must be adjusted from 1
July 2026.
The offset by MRCA incapacity payments from 1 July 2026, must not take the rate of the Disability Compensation Payment below the underlying General Rate.
Example: on 30 June 2026, a TPI recipient is receiving a Disability Compensation Payment equivalent to 70% of the General Rate because of offsetting due to DRCA incapacity payments. However, their underlying General Rate is 100% because of a determined impairment of 60 points and lifestyle rating of 4. On 1 July 2026, the dollar offset by MRCA incapacity payments must not take the Disability Compensation Payment below 100% of the General Rate.
Step 5:
No further action is required on transfer to MRCA incapacity payments, provided that the
offset to the Above General Rate (by those payments) does not take the ongoing rate of
Disability Compensation Payment below the underlying General Rate.
Example: on 30 June 2026, a TPI recipient is receiving a rate of Disability Compensation Payment reduced by $200 a week because of DRCA incapacity payments. In other words, they are still receiving some of the Above General Rate portion. On 1 July 2026 upon transfer to the MRCA, incapacity payments are slightly increased under the MRCA framework to $250 a week. This is the new ongoing dollar offset, because it still does not take the ongoing rate of Disability Compensation Payment below the underlying General Rate.