Incapacity Payments: Considering Your Options

If you have either been medically discharged or have applied to DVA for incapacity payments, then you may be receiving Department of Veteran Affairs (DVA) Incapacity payments. 

​Some general rules regarding incapacity payments are: 

• If you medically discharge, DVA will generally top you up to 100% of your in-service earnings for 45 weeks. 
• After 45 weeks, DVA’s top up obligation is only 75% of your in-service earnings. 
• Incapacity payments are taxable income and will cease at age 67. 

So, if you were earning $100,000 whilst in Defence (75% of this is $75,000), and your Class A pension (Commonwealth Superannuation Corporation (CSC)) is $80,000pa, then there will be no Incapacity payments after your 45 weeks is up. If your Class A pension is $70,000pa, then DVA will top you up $5,000 ($70,000 + $5,000 = $75,000).  

​Did you know, if you are receiving incapacity payments after 45 weeks, there could be an option to lump sum (redeem) these weekly incapacity payments as a one off, taxable pay out from DVA.  

This pay out option depends on the amount of your weekly incapacity payment. The current weekly “lump sum redemption level” cap is $271.42 (amounts will change in the future. See here for further information). If you are below this amount, you could elect to be paid out your Incapacity payments.  

As always, terms and conditions apply so please tread carefully before considering this pay out option:  

• The lump sum amount will be taxable income in the financial year you receive it. This is on top of your other taxable incomes.  
• The amount may affect other government subsidies and be assessable for child support payments, etc. 
• Once paid out, you will no longer receive incapacity payments from DVA. 
• The calculation isn't a simple weekly amount of X-number of weeks until age 67 (when Incap ceases). DVA use a specific and unique formula to calculate the lump sum amount. 

This option can be beneficial to some veterans but not to all, so feel free to discuss this with a financial adviser who understands DVA, tax, and your specific financial plan to see if this potential strategy suits your plans.

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Any advice provided in this article is general advice only and has been prepared without taking account of your personal objectives, financial situation or needs. Before acting on any such general advice, you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs.