Any bonus paid to an employee in Australia, including the continuation bonus paid in the ADF, will be taxed as income on top of a member’s normal salary and other forms of income (e.g., dividends, interest, rent).

If you’re in the fortunate position of being offered such a bonus, you might like to know whether, as a result of this payment, the top level of your new income will be taxed within a higher tax bracket. The answer depends on your current level of income.

The important point here is that even if you move temporarily into a higher tax bracket as a result of receiving the bonus, it will only be a part of your new level of income that will be taxed at the higher rate (NOT all of it).

Therefore, whatever the outcome, you will still be ahead. You will not be taxed at a rate that will extinguish the amount of the bonus. 

Two strategies to consider to minimise tax

So subject to any conditions in your letter of offer, here are a couple of strategies worth considering to legally minimise the tax on the bonus.

Strategy 1:  Taking the bonus in instalments over two or more tax years

Depending on your current level of income (from all sources), doing this may keep you within your current tax bracket, rather than pushing you into a higher one. You can get a good idea of the tax brackets that apply to you as a resident of Australia through the following links to the Australian Taxation Office website…2026 tax rates, 2027 tax rates.

Work out your gross annual salary and other income before tax, add the gross bonus before tax (all in one year or spread over two) and you will be able to estimate the different outcomes.

Strategy 2: Putting some of the bonus into superannuation

This can be done via salary sacrifice (before tax). If you’d like to discuss your individual circumstances (including the limits on contributions that may be salary sacrificed), we recommend seeking a consultation with the Commonwealth Superannuation Corporation (CSC), with your own superannuation fund provider (if you’re not in a CSC fund), with Smart (Defence’s contracted salary packaging provider) and/or with a professional adviser (there’s more on the latter below).

These two strategies may not suit your personal circumstances, for example, if you have debts and would prefer to pay them off. But we mention them here because they are regularly considered by ADF members.

Some sources of information and advice

Services Australia / Centrelink

Receipt of a bonus may impact certain government benefits.

Services Australia, which includes Centrelink and Child Support, work off adjusted taxable income when calculating income support payments, such as Family Tax Benefit (FTB) or child support payments. A bonus paid to you is part of salary and wages, and money salary sacrificed into super will be a reportable employer super contribution.

To find out about how a bonus will affect your FTB or child support obligations, contact:

• Centrelink families line on 136 150, or
• Child support enquiry line on 131 272.

Explain that your bonus is a one-off (or two-off) payment that will only be received in the current financial year (or next two years), and ask how your payments, or payment obligations will be affected.

Personal Financial/Tax Advice

Clearly, this material is not tailored to your specific needs and must not be treated as financial advice. Therefore, if you’re unsure about what to do, we suggest you should consider approaching a registered tax agent (RTA)/accountant/financial adviser who should be able to advise you on what’s best in your personal circumstances.

If you don’t know who to approach, this article on professional advisers might assist.

Other options for getting tax advice are to approach one or more of the RTAs who advertise in the Defence newspapers. We’re not in a position to recommend them, but it’s reasonable to assume they have ADF clients and will therefore have some knowledge of ADF pay and conditions.

Alternatively, you could consider approaching a licensed financial adviser through our ADF Financial Advice Referral Program.

The Program contains a list of licensed financial advisers who have declared in writing to Defence that they do not receive any form of conflicted remuneration (such as commissions from a third party or a %-based fee). This should give you some assurance that the advice you receive will be offered in your best interests.

Note that any professional advice is likely to incur a fee (maybe tax deductible). Therefore, if you choose to get tax/financial advice, make sure you understand the cost of the advice before going ahead.

Information provided by Defence

For more detailed information on the continuation bonus scheme, ask your chain of command for links to online material specific to your service and refer to your letter of offer. You should also read this information in PACMAN.