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, or
  • 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, or
  • 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.

Example: Among others this includes payments made:

  • from a workers compensation scheme, AND
  • by motor vehicle third party schemes, AND
  • under a personal accident or insurance policy or income replacement insurance policy, AND
  • as a result of personal injury arising from a professional negligence claim (e.g. medical negligence) that includes a component for lost earnings or lost earning capacity, AND
  • other personal injury compensation payments.

Excluded payments

The definition of compensation does NOT include payments from:

  • a medically acquired HIV trust (e.g. 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,
  • Defence Force Income Support Allowance (DFISA),
  • 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, and
  • victims of crime schemes, including criminal injury compensation and death benefits.

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).

Act reference: SSAct section 17(2) Compensation, section 17(2A) Paragraph (2)(d) does not apply to a compensation payment if…, Part 3.14 Compensation Recovery

Policy reference: SS Guide 4.13 Compensation, 3.1.9 Compensation Provisions, 6.4 Compensation Recovery, 1.1.C.250 Compensation affected payment, 4.13.1.20 Assessment of Compensatory Type Payments

Last reviewed: 20 September 2017