Ordinary part-time service
Pay and allowances for service as a member of the Australian Defence Reserve Forces—other than continuous full-time service—are generally exempt under section 51-5.
Watch — ADF Reserve pay
ADF Reserve Pay: Is It Tax-Free?
Ordinary Reserve service and continuous full-time service do not necessarily receive the same income-tax treatment.
What this video covers
- Why pay and allowances for ordinary part-time service are generally exempt
- Why continuous full-time service is the important exception to check
- Why civilian salary remains taxable under the ordinary rules
- Which service arrangements and pay records to review before lodging
Reserve service is not one tax category
The nature of the service that produced the payment matters more than the Reserve label alone.
Continuous full-time service
Pay for continuous full-time service is generally taxable unless a different exemption applies. Check the service category and dates rather than assuming every Defence payment is exempt.
Separate each source of income
Your return may contain taxable civilian income, exempt Reserve amounts and other Defence payments with different treatment.
Reserve pay records
Keep Defence pay records and service documentation that identify the service arrangement and the period covered.
Civilian salary
Salary from civilian employment remains assessable under the normal rules even when you also perform Reserve service.
Expenses for exempt income
Expenses incurred in earning exempt Reserve income generally cannot be claimed as deductions against assessable income.
Other exemptions
If continuous full-time service is connected with another qualifying circumstance, that separate exemption must be tested on its own requirements.
Common questions about ADF Reserve pay
Is ordinary ADF Reserve pay tax-free?
Pay and allowances for Reserve service other than continuous full-time service are generally exempt from income tax under section 51-5. Your service arrangement and pay records should still be checked.
Is continuous full-time Reserve service also exempt?
Not under the ordinary Reserve-pay exemption. Continuous full-time service pay is generally taxable unless another specific exemption applies.
Can I claim deductions for expenses that produced exempt Reserve pay?
Generally, expenses incurred in earning exempt income are not deductible. Expenses connected with taxable civilian work or other assessable income must be considered separately.
Video transcript
The supplied transcript has been lightly edited for punctuation, clarity, names and Australian spelling.
Is your Reserve pay tax-free? Generally, yes—but there is an important exception.
Pay and allowances for ordinary part-time service in the Army, Navy or Air Force Reserve are generally exempt from income tax.
Your civilian salary is still taxed under the normal rules. If you undertake continuous full-time service, that pay is generally taxable unless another exemption applies.
Being a reservist does not mean every Defence payment you receive is tax-free. Check your service arrangements and pay records before you lodge.
Unsure which rules apply? Book with DefenceTax or visit defencetax.com.au.
General information only. Tax treatment depends on the applicable law, relevant dates, supporting records and your individual circumstances.