1.1.C.240 Compensation

Usage

This definition applies to all payments.

Definition

Compensation is defined in SSAct subsection 17(2) as a payment that is made wholly or partly in respect of lost earnings or lost capacity to earn resulting from personal injury (this includes a disease or condition), whether paid as a lump sum or periodic payments (either within or outside Australia), including payments:

• of damages
• under a scheme of insurance of compensation under a Commonwealth, state or territory law, including a payment under a contract entered into under such a scheme
• in settlement (with or without admission of liability) of a claim for damages or a claim under such an insurance scheme, or
• for any other compensation or damages.

Excluded payments

The definition of compensation does NOT include payments from:

• a medically acquired HIV trust (for example, The Mark Fitzpatrick Trust and the NSW Medically Acquired HIV Trust)
• a payment for professional negligence by a solicitor (where the professional negligence has not caused personal injury)
• a personal accident or insurance policy or income replacement insurance policy WHEN
  • the person made contributions toward the payment AND there is NO offset clause, OR
  • the person made contributions toward the payment AND there is an offset clause, BUT it has not been invoked
• claims related to a natural disaster
• compensation for unlawful dismissal, sexual harassment or racial discrimination
• death benefits
• disability compensation made under the VEA
• periodic compensation resulting from Defence Forces Reserve activity
• sporting injury compensation (unless the policy contains an 'offset' clause against social security payments that has been invoked)
• state and territory 'compensation to relatives' legislation
• the Special Rate Disability Pension safety net payment paid by the Military Rehabilitation and Compensation Scheme
• victims of crime schemes, including criminal injury compensation and death benefits
• the National Redress Scheme for Institutional Child Sexual Abuse, and
• the Territories Stolen Generations Redress Scheme.

These payments may be treated as ordinary income unless specifically excluded as income under SSAct section 8(8) or section 8(11). There is a specific section 8(11) determination that exempts certain compensatory type payments from the income test (Social Security (Exempt Lump Sums-Payments Compensatory in Nature for Non-Economic Loss) Determination 2017).