4.3.5.60 About DVA compensation payments

Summary

This topic provides information about the following:

• DVA - VEA, Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988 (DRCA)* and MRCA
• compensation payments
• MRCA Special Rate Disability Pension (SRDP) 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.

*The DRCA replicated the provisions of the Safety, Rehabilitation and Compensation Act 1988 (SRCA). Part 11 of the SRCA was modified so that from 12 October 2017, all defence-related claims are considered under the DRCA.

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

• Veterans' Entitlements Act 1986
• Safety, Rehabilitation and Compensation (Defence-related Claims) Act 1988
• Military Rehabilitation and Compensation Act 2004, and
• Defence Act 1903 (DA).

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 - VEA, DRCA & MRCA

DVA administers the VEA, the DRCA and the MRCA.

The VEA covers compensation payments for the following types of ADF service:

• peacetime service (after completion of 3 year qualification period) - from 7 December 1972 to 6 April 1994. Members who enlisted before 2 May 1986 and were still serving after 7 April 1994 are also covered
• all periods of operational service, peacekeeping service and declared hazardous service prior to 1 July 2004, and
• warlike or non-warlike operations in East Timor, Afghanistan or Iraq or in any other similarly declared operation prior to 1 July 2004.

The DRCA is the compensation legislation that applies to current and former members of the ADF with conditions linked to service prior to 1 July 2004.

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 were not in the ADF at 1 July 2004 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 payments 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) payment (under MRCA). MRCA also has other benefits not provided under DRCA, such as potential access to a Repatriation Health Card (Gold).

MRCA SRDP

Former ADF members paid (or entitled to be paid) incapacity payments under the MRCA, who have a minimum level of impairment, are unable to work more than 10 hours per week, and for whom rehabilitation is unlikely to increase their capacity to work, will be offered a choice between a tax free SRDP payment for life or remaining on incapacity payments payable to age pension age. The maximum SRDP under MRCA is a periodic payment that is equivalent to the VEA Disability Compensation Payment at the Special Rate. DRCA and MRCA incapacity payments are economic loss compensation (that is, 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 actually payable is reduced, dollar for dollar, by the amount of permanent impairment payments paid under the DRCA and MRCA and VEA Disability Compensation Payment. 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.

How DRCA & MRCA payments affect other DVA payments

The VEA continues 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.

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, or qualifying age for VEA ISS recipients. For qualifying age, please refer to the definition provided at 5Q of the VEA.

DRCA and MRCA incapacity payments are counted as income when determining the rate of:

• VEA ISS after qualifying age
• Service Pension after Age Service Pension age, and
• when determining financial hardship.

DRCA and MRCA incapacity payments are economic loss compensation (that is, 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 income for VEA income support payment purposes. They are counted as income when determining financial hardship.

How DRCA & MRCA payments are assessed under the SSAct

People receiving DRCA or MRCA payments may be eligible to receive income support payments under the SSAct.

Payments under the DRCA or MRCA that contain an economic loss component (including incapacity payments but not SRDP) are compensation, as defined under SSAct section 17. This includes payments made within or outside Australia.

MRCA compensation for Wholly Dependent Partners (WDP), eligible young persons and dependants, which are paid as a lump sum, are not assessed as income for social security income test purposes. This is done under SSAct section 8(11) income test determination (Social Security (Exempt Lump Sums - Payments Compensatory in Nature for Non-Economic Loss) Determination 2017).

MRCA permanent impairment payments and SRDP are not assessed as income for social security income test purposes from 1 January 2022.

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.

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.

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.