4.3.5.60 About DVA Compensation Payments

Summary

This topic provides information about the following:

  • DVA Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 (DRCA)* & MRCA,
  • compensation payments,
  • MRCA Special Rate Disability Pension (SRDP) safety net payment,
  • how DRCA and MRCA affect other DVA payments,
  • how DRCA and MRCA payments are assessed under the SSAct,
  • superannuation used to reduce the rate of SRDP is excluded under the SSAct income test,
  • superannuation used to reduce the rate of SRDP is assessed under SSAct hardship rules,
  • how DRCA and MRCA payments are assessed under the FAAct, and
  • how specific compensation payments are assessed under the SSAct.

*Historically DRCA was part of the Safety, Rehabilitation and Compensation Act 1988 (SRCA). On 12 October 2017, Part 11 of SRCA was removed to become a stand-alone Act (DRCA).

There are 4 Acts which provide compensation coverage for current and former members of the Australian Defence Force (ADF). They are:

The benefits a person may be entitled to when claiming for compensation will depend on:

  • the date on which the injury or illness occurred (for DRCA, DA and MRCA purposes), or
  • the period of service to which an injury or disease can be related, the type of service, and the period of time served (for VEA purposes).

DVA DRCA & MRCA

DVA administers the VEA, the DRCA as well as the MRCA.

The MRCA received Royal Assent on 27 April 2004. The MRCA creates a new military compensation scheme to meet the needs of all ADF members and their families in the event of injury, disease or death. The MRCA applies to a person's injury, disease or death if the injury is sustained, the disease contracted or the death occurs on or after 1 July 2004 and the injury, disease or death related to defence service on or after 1 July 2004.

Veterans who are not in the ADF at 1 July 2004 will not be affected by the new legislation and will continue to be covered under the VEA or the DRCA. People who are already entitled to compensation under the VEA, or who become entitled to compensation because of injury or disease sustained or suffered BEFORE 1 July 2004, are still entitled to receive compensation payment either through the VEA or DRCA.

Compensation payments

DRCA and MRCA compensation payments include incapacity payments for economic loss, permanent impairment payments for non-economic loss and a Special Rate Disability Pension (SRDP) safety net payment (under MRCA). MRCA also has other benefits not provided under DRCA such as potential access to a Repatriation Health Card (Gold or White Card).

MRCA SRDP safety net payment

Those who are paid under the MRCA should be no worse off than if they were covered under VEA.

After 1 July 2004, former ADF members paid under the MRCA, who are unable to work or be rehabilitated to work more than 10 hours a week will be offered a choice between a tax free SRDP safety net for life or incapacity payments payable to age pension age. The SRDP is a periodic payment that is equivalent to the VEA SRDP. DRCA and MRCA incapacity payments are income replacement payments that are taxable when the income they are intended to replace is taxable. If the income is non-taxable (including Reserve pay or deployment allowances), the incapacity payment replacing that income will also be non-taxable. Tax status does not affect how the payments are treated under social security compensation rules.

The amount of SRDP payable is reduced, dollar for dollar, by the amount of other permanent impairment payments paid by DVA. The amount of SRDP payable is also reduced, at the rate of 60 cents in the dollar, by the Commonwealth-funded component of any superannuation which accrued whilst they served in the ADF.

Note: If the superannuation payment is received as a lump sum, it will be actuarially converted into a periodic amount.

How the SRDP is offset against other DVA payments and against superannuation is shown below. In combination, these offsets could often reduce the SRDP to zero.

Payment Effect on SRDP
MRCA incapacity payment

SRDP replaces this payment.

If an eligible person chooses to receive SRDP, they cannot receive an MRCA incapacity payment as well.

MRCA permanent impairment payment (expressed as a periodic payment) SRDP is reduced by this payment on a dollar for dollar basis.
VEA disability pension SRDP is reduced by this payment on a dollar for dollar basis.
Permanent impairment and non-economic loss compensation paid under the DRCA SRDP is reduced by this payment on a dollar for dollar basis. (Actuarially converted from a lump sum to a periodic payment).
Military superannuation (Government component only)

SRDP is reduced by this payment.

The Government-funded component of any superannuation which accrued whilst they served in the ADF (expressed as a periodic payment) is used to offset SRDP at the rate of 60 cents for each dollar. (Members' own contributions do not reduce SRDP.)

How DRCA & MRCA payments affect other DVA payments

The VEA will continue to provide income support to entitled veterans. People who receive compensation under the DRCA or MRCA may also be eligible to receive income support paid under the VEA if they have qualifying (warlike) service.

DRCA and MRCA incapacity payments are generally payable to age pension age and reduce VEA service pension payments on a dollar for dollar basis before Age Service Pension age. They are counted as income when determining the rate of VEA income support supplement and when determining financial hardship. DRCA and MRCA incapacity payments are income replacement payments that are taxable when the income they are intended to replace is taxable. If the income is non-taxable (including Reserve pay or deployment allowances), the incapacity payment replacing that income will also be non-taxable. Tax status does not affect how the payments are treated under social security compensation rules.

DRCA or MRCA permanent impairment payments and SRDP payments are not counted as VEA income for service pension purposes. They are counted as income when determining the rate of VEA income support supplement and when determining financial hardship.

How DRCA & MRCA payments are assessed under the SSAct

People receiving DRCA or MRCA payments who do not have qualifying (warlike) service may be eligible to receive income support payments under the SSAct.

Payments under the DRCA or MRCA that contain an economic loss component (except the SRDP safety net payment) are compensation, as defined under SSAct section 17. This includes payments made within or outside Australia.

Payments that are for non-economic loss only are assessed as ordinary income.

The SRDP payment is assessed as ordinary income, rather than as compensation for social security income support purposes. See also 4.13.1.20, paragraph titled 'Compensation/compensatory payments assessed as ordinary unearned income'.

Some entitlements and payments made under the MRCA are subject to multiple entitlement exclusions under the SSAct. These payments include:

  • pharmaceutical allowance,
  • a social security payment for which a pension supplement amount is used to work out the rate of payment,
  • telephone allowance,
  • assistance with the education of dependent children, and
  • a death benefit payable automatically to eligible dependants and funeral assistance.

Act reference: SSAct section 17 Compensation recovery definitions, section 552 Multiple entitlement exclusions

Policy reference: SS Guide 4.13 Compensation, 4.13.1.20 Assessment of Compensatory Type Payments, 4.13.3 Periodic Compensation

Superannuation used to reduce the rate of SRDP is excluded under the SSAct income test

Only the residual military superannuation that has NOT been used by DVA to reduce the rate of SRDP is to be counted as ordinary income for social security income support payments.

Superannuation used to reduce the rate of SRDP is assessed under the SSAct hardship rules

Amounts of military superannuation that are excluded under the SSAct income test (because they have already been used to reduce the rate of SRDP paid under the MRCA) ARE counted as income when determining hardship under the SSAct.

Act reference: SSAct section 8(8) Excluded amounts-general, section 8(12) Special Rate Disability Pension reduction amount, section 1130 Application of financial hardship rules-pensions, section 1130C Application of financial hardship rules-pension PP (single), section 1132 Application of financial hardship rules-benefits

Military Rehabilitation and Compensation Act 2004

Military Rehabilitation and Compensation (Consequential and Transitional Provisions) Act 2004 Schedule 3 item 38, Schedule 3 item 39

Policy reference: SS Guide 4.3.5.10 How Income from DVA is Assessed, 4.3.5.30 About DVA Disability Pensions, 4.6.7.130 Rate Calculation Under the Hardship Provisions

How DRCA & MRCA payments are assessed under the FAAct

Payments made under the DRCA and MRCA will affect entitlement to FTB and CCS.

The SRDP is defined as a tax free pension under the FAAct. MRCA incapacity payments and SRDP are included in a person's ATI for the purposes of assessing entitlement to FTB and CCS.

Act reference: FAAct Schedule 3 clause 7 Tax free pension or benefit, Schedule 3 clause 2 Adjusted taxable income

Policy reference: FA Guide 3.2.6 Tax Free Pensions or Benefits, 3.2.2 Taxable Income

How specific compensation payments are assessed under the SSAct

The following table list payments made under the DRCA and MRCA and how they are treated as income for social security purposes.

Payment Treatment
DRCA payments for attendant care These payments are income.
MRCA payments for attendant care and funeral costs These payments are specifically excluded under the SSAct section 8(8) (y and zo).
MRCA reimbursement of costs

Not income.

Policy reference: SS Guide 4.3.2.10 Income received to cover specific expenses

MRCA compensation for certain eligible young dependents of deceased members NOT income.
MRCA permanent incapacity additional payment for eligible young persons Exempt under SSAct section 8(8)(j).
MRCA other dependant compensation

If person receiving a pension, the lump sum is ignored. If they are receiving an allowance the lump sum is assessed in the fortnight of receipt.

This payment may be made for/to children or adult dependents. Payments for children are excluded under SSAct section 8(8)(j). Payments to children are not.

MRCA Motor Vehicle Compensation Scheme These payments are specifically excluded under SSAct section 8(8).
MRCA supplement Multiple exclusion applies.
MRCA Education and Training Scheme Excluded as income under SSAct section 8(8)(j) if paid to the parent; prescribed scheme is subject to multiple exclusion.
MRCA bereavement payments
  • Not income where paid to an adult.
  • 4.13.1.20 applies where paid to a child.
  • Where MRCA bereavement payment to eligible youth payments is paid to an adult on behalf of the dependent, the payment is excluded under SSAct section 8(8)(i).
  • Where payment is received by the dependent child:
    • it is NOT excluded under SSAct section 8(8)(j).
    • it is not compensation under SSAct section 17(2), but it is compensatory in nature.

Policy reference: SS Guide 4.13.1.20 Assessment of Compensatory Type Payments

DRCA funeral costs Income (unless meets the criteria for treatment as a reimbursement).
MRCA funeral benefits Exempt under SSAct section 8(8)(zo).
DRCA household services Income (unless meets the criteria for treatment as a reimbursement).
MRCA household services Income (unless meets the criteria for treatment as a reimbursement).
DRCA rehabilitation programs Income (unless meets the criteria for treatment as a reimbursement).
DRCA medical treatment Income (unless meets the criteria for treatment as a reimbursement).
MRCA loss of or damage to medical aids Exempt under SSAct section 8(8)(k).

Act reference: SSAct section 8(8) Excluded amounts-general

Policy reference: SS Guide 4.3.2.10 Income received to cover specific expenses

Last reviewed: 20 March 2019