4.13.1.20 Assessment of Compensatory Type Payments

This topic

This topic contains information on the following:

  • compensation/compensatory payments assessed as ordinary unearned income,
  • treatment of compensation/compensatory payments assessed as ordinary unearned income,
  • disability benefits paid from superannuation funds,
  • lump sums exempt under section 8(11), and
  • payments which are compensatory in nature - specifically excluded as income under section 8(8).

Summary

If a compensation payment does not come within the SSAct section 17(2) definition of 'compensation' then it is assessed as ordinary unearned income unless it is subject to an income test exemption. Exactly how the compensation affects social security payments depends on whether the compensation is paid as a lump sum or as a periodic payment.

Periodic compensation that falls within the section 17(2) definition of compensation affects the compensation recipient under SSAct Part 3.14. However, for some compensation recipients, the periodic compensation payment will still be assessed as ordinary unearned income. Periodic compensation may affect a compensation recipient's partner but only the excess, after the compensation recipient's rate is reduced to nil, is treated as the partner's ordinary unearned income.

Compensation assessed as ordinary unearned income is NOT employment income (1.1.E.102).

Some compensation payments may not be assessed as 'ordinary unearned income' OR compensation, see 'Payments which are compensatory in nature - specifically excluded as income under section 8(8)' below, or 4.3.2.35 for lump sums exempt under section 8(11).

Act reference: SSAct section 8(1A)(d) A reference in this Act to employment income…, section 8(8) Excluded amounts - general, section 8(11) An amount received by a person is an exempt lump sum if…, section 17(2) Compensation, Part 3.14 Compensation recovery

Policy reference: SS Guide 4.13.1.10 What is Compensation, 4.3.2.35 Income Exempt from Assessment - s 8(11) Exempt Lump Sums

Compensation/compensatory payments assessed as ordinary unearned income

A compensation payment is assessed as ordinary unearned income if it does not fall within the SSAct section 17(2) definition of compensation and is not otherwise an exempt payment (for instance, under a section 8(11) determination).

This may include payments which are compensatory in nature but do not contain economic loss due to personal injury.

Examples of payments that DO NOT fall within the section 17(2) definition and should therefore be assessed as ordinary income include:

  • DVA disability pension,
  • compensation for unlawful dismissal,
  • payments for a personal accident or insurance policy; an income replacement insurance policy; salary continuance payments; or sporting injury compensation, WHEN:
    • the person has made contributions towards the policy, AND
    • the policy does NOT include an offset clause, OR
    • the policy contains an offset clause but it has not been invoked.

Note: None of the above payments are compensation for the purposes of SSAct Part 3.14.

Act reference: SSAct section 17(2) Compensation, Part 3.14 Compensation recovery

Policy reference: SS Guide 3.1.9.10 Compensation & Payability, 4.3.2.35 Income exempt from assessment - s 8(11) exempt lump sums, 4.3.5.10 How Income from DVA is Assessed, 4.13.3.10 Overview of Periodic Compensation Payments, 4.3.9.30 Income from personal injury insurance schemes

Treatment of compensation/compensatory payments assessed as ordinary unearned income

The following table shows how payments that are compensatory in nature are assessed as ordinary unearned income for allowances/benefit and pensions:

Compensation that is paid… Is assessed as ordinary unearned income for…
as a lump sum*,
  • pension and allowances/benefits and
  • apportioned as income over 52 weeks from the date they are entitled to be received.
periodically,
  • allowances/benefit, AND
  • pensions.

* If a lump sum is received instead of periodical payments and the lump sum is calculated at a set weekly, fortnightly or monthly rate over a specific period, the payment is treated as if periodical payments were being made throughout the relevant period.

Act reference: SSAct section 8 Income test definitions

Policy reference: SS Guide 4.3.9.30 Income from personal injury insurance schemes

Disability benefits paid from superannuation funds

A regular/periodic disability benefit paid from a superannuation fund where the payment is based on a person's entitlement from an insurance policy, whether or not there is an 'offset' clause, is assessed as ordinary income. This includes regular, ongoing payments made under a sickness and accident policy, income protection policy (IPP) or total and permanent disability (TPD) or total and temporary disability (TTD) policy when paid from a superannuation fund, whether funded by the person, or another party (e.g. their union or employer).

A lump sum disability benefit paid from a superannuation fund is not assessed as income. Depending on what the income support recipient uses the lump sum amount for, further assessment may be necessary.

Some payments that are compensatory in nature are specifically exempted from the income test under social security law, either:

  • under the provisions of section 8(11) (determinations to exempt lump sums), or
  • under section 8(8) (legislative exclusions).

Policy reference: SS Guide 1.1.O.30 Ordinary Income, 4.9.8.10 Specific provisions for assessing income streams, 4.3.9.30 Income from personal injury insurance schemes

Lump sum payments which are compensatory in nature specifically excluded as income under section 8(11)

Some lump sums are NOT treated as income for social security purposes. Section 8(11) determinations allow for the Secretary of DSS to exempt certain lump sums that are not periodic amounts, leave payments or income from remunerative work.

For the full list of lump sum payments exempted under section 8(11) please see 4.3.2.35.

Act reference: SSAct section 8(11) An amount received by a person is an exempt lump sum if…

Policy reference: SS Guide 4.3.2.35 Income exempt from assessment - s 8(11) exempt lump sums

Payments which are compensatory in nature - specifically excluded as income under section 8(8)

Some payments to compensate for adverse circumstances are specifically excluded as income under SSAct section 8(8), whether they are received as lump sums or as periodic payments. These payments are:

  • emergency relief or like assistance,
  • loss or damage to buildings, plant or personal effects,
  • a medically acquired HIV trust such as The Mark Fitzpatrick Trust or the NSW Medically Acquired HIV Trust,
  • restitution payments to victims of National Socialist (Nazi) persecution,
  • payments made by the Thalidomide Australia Fixed Trust.

Act reference: SSAct section 8(8) Excluded amounts - general (see (c), (k), (n), (vc))

Policy reference: SS Guide 4.3.2.30 Income exempt from assessment - legislated, 4.3.6.30 Holocaust Restitution Payments - All Countries, 4.3.6.40 Restitution Payments - Netherlands

Last reviewed: 5 February 2018