4.13.2.30 Compensation part of lump sum - 50% rule
This topic
This topic contains information on the following:
- What is part of the compensation lump sum?
- 50% rule
- applying the 50% rule to a lump sum payment.
Summary
This topic explains the 50% rule for assessing the compensation part of a lump sum payment when a lump sum is received as a settlement. It explains how the rule is applied.
What is part of the compensation lump sum?
A 1997 Federal Court decision (Secretary to the Department of Social Security v Roberta Rosa Cunneen (1997) FCA 1033) made it clear that the constituent parts of compensation (for the same compensable event) should be aggregated into a single lump sum payment when applying the compensation provisions. This means that arrears or advances of periodic compensation payments when this is paid with other compensation components as one lump sum payment cannot be separated to calculate their effects under the SSAct.
However, the calculation of the lump sum should not include past periodic payments which have actually been paid to the individual, and could have been assessed under the periodic compensation payment rules.
To calculate the compensation part of the lump sum payment (for the same compensable event) for a compensation claim that is finalised after a contested hearing by a court, tribunal or arbitrator, the specific amounts awarded for economic loss, including the arrears or advance of the periodic compensation payments, are taken to be the compensation part of the lump sum payment and the 50% rule does not apply.
Exception: Assessment of a single settlement sum paid for multiple, separate claims.
When a compensation recipient has received a single settlement sum paid for multiple separate claims (for separate compensable events) (for example, 2 unrelated workplace injuries) it is critical to determine how much of the settlement sum was paid in relation to each compensable event. If no further information can be obtained about how to attribute the settlement sum to the various compensable events, it is acceptable to divide the settlement sum by the total number of compensable events in order to determine the lump sum paid in respect of each compensable event (see Savage v DEWR [2008] FMCA 32).
Act reference: SSAct section 17(3) Compensation part of a lump sum
Policy reference: SS Guide 4.13.2.50 Aggregation of multiple lump sums
50% rule
In order to calculate the lump sum preclusion period, the compensation part of a lump sum payment for the same compensable event must be determined. The 50% rule deems half the lump sum payment as being the compensation part in ALL cases where:
- the lump sum payment is received as SETTLEMENT of a claim, including as a consent judgement, as an interim payment, or a redemption of periodic payments, and
- all or part of the payment is for:
- lost earnings, or
- lost capacity to earn.
Act reference: SSAct section 17(3) Compensation part of a lump sum
Policy reference: SS Guide 4.13.2.60 Lump Sum Preclusion Period - General
Applying the 50% rule to a lump sum payment
The 50% rule is applied to the gross lump sum for the same compensable event. The gross lump sum is the amount the compensation payer becomes liable to pay to the recipient under the terms of the award or settlement. The only allowable deduction is periodic compensation that the compensation recipient becomes liable to repay (for example, under state or territory law) because they have received the lump sum payment. If a compensation payer who reaches a lump sum settlement also becomes liable to pay an amount to a third party such as a state government agency, that additional amount is not part of the gross lump sum paid to the recipient.
The following table shows how the 50% rule is applied in various situations.
| If the terms specify that the lump sum … | then the 50% rule … |
|---|---|
| includes an amount for past periodic payments, AND because of receiving the lump sum, the compensation recipient becomes liable to repay those periodic payments (for example, under state or territory law) | applies to the lump sum payment (LSP) less the repaid periodic compensation payments (RPCP), that is, the amount of the lump sum compensation payment is:
Example: Settled for $300,000 with past periodic payments of $20,000 to be repaid. The lump sum for the purposes of the 50% rule is $280,000. |
| includes costs (which may include legal costs) and disbursements | applies to the total lump sum payment. Example: Settled for $200,000 inclusive of costs and disbursements. The lump sum for the purposes of the 50% rule is $200,000. |
| includes an amount for pre-settlement medical costs | applies to the total lump sum payment. Example: Settled for $200,000 inclusive of pre-settlement medical costs. The lump sum for the purposes of the 50% rule is $200,000. |
| does not include an amount for pre-settlement medical costs AND the compensation payer becomes liable to repay any pre-settlement medical costs to a third party (for example, under state or territory law) | applies to the lump sum payment without any addition of the pre-settlement medical costs. Example: Settled for $200,000 with the payer liable to repay $25,000 for pre-settlement medical costs. The lump sum for the purposes of the 50% rule is $200,000. |
| includes an ADDITIONAL amount for costs | applies to the total lump sum payment including the additional amount. Example: Settled for $200,000 with an additional amount of $70,000 for costs. The lump sum for the purposes of the 50% rule is $270,000. |
| excludes legal costs from the lump sum payment, AND the legal costs are fixed | applies to the total lump sum payment that is, the 2 separate lump sum payments are aggregated. Example: Settled for $125,000 exclusive of legal costs. The legal costs are fixed at $7,250. The lump sum for the purposes of the 50% rule is $132,250. |
| excludes costs from the lump sum payment, AND costs are not determined at the date of settlement | applies to the lump sum payment at the date of settlement (when these costs are determined at a later date, they are not assessed for compensation purposes). Example: Settled for $125,000, costs to be determined. The lump sum for the purposes of the 50% rule is $125,000. |
| includes Centrelink charges (indemnities), specified or unspecified |
|
includes an amount for tax either:
| applies to the total lump sum payment including the tax amount. |