220.127.116.11 Effect of compensation on compensation affected payments
This topic contains information on the following:
- what is a CAP
- what is a 'saved' CAP
- compensation lump sums
- compensation affects most social security payments
- notification requirements
- date of compensable event
- compensation as ordinary income
- compensation for personal injury non-economic loss
- compensation under the provisions of Part 3.14, and
- compensation as an assessable asset.
Act reference: SSAct Part 3.14 Compensation recovery
A compensation payment that falls within the section 17(2) definition of compensation may affect the compensation recipient or his/her partner's social security income support payment under the compensation provisions of Part 3.14. For a payment to be affected under Part 3.14 the social security payment has to be a CAP.
A compensation lump sum can preclude the compensation recipient from social security income support for periods in the past as well as into the future. From 20 March 1997, a compensation recipient's partner is NOT subject to a preclusion period.
Most periodic payments are assessed as a dollar for dollar deduction against the compensation recipient's CAP, but in some circumstances can be treated as ordinary income. A partner of a compensation recipient (unless one of the members of a couple is in receipt of an SCAP) is only affected by periodic compensation, if the compensation payable exceeds the MBR for which the compensation recipient is qualified. (See table below for effect on SCAP couples.)
Special provisions in Part 3.14 allow for all or part of a compensation payment, lump sum or periodic payment, to be treated as if it has not been made or is not liable to be made.
Act reference: SSAct section 17(2) Compensation, section 1173 Effect of periodic compensation payments on rate of person's compensation affected payment, section 1174 Effect of periodic compensation payments on rate of partner's compensation affected payment, Part 3.14 Compensation recovery
What is a CAP
Since 1 May 1987 the scope of the compensation provisions has been progressively extended and now most social security payments, including Age (blind) and DSP (blind), are compensation affected. The only exception to this rule is wife (age) pension (abolished 20 March 2020) which is unaffected by the compensation provisions of Part 3.14.
Some additional payments are also regarded as CAPs. See 6.4.1.
From 1 July 2004 the following are CAP payments:
- fares allowance
- TAL (other than that paid to the holder of a seniors health card)
- pensioner education supplement
- advance PhA
- education entry payment, and
- employment entry payment.
For a social security payment to be assessed as a CAP, the compensation itself needs to have been received on or after the relevant commencement date for that particular social security payment. The claim for the social security payment also has to have been made on or after that date.
Section 1161(1) lists those social security payments that were already compensation affected prior to 1 May 1987. Unless listed in the table below, all other social security payments were compensation affected as of 1 May 1987.
|Age pension||20 March 1997||Provisional commencement day or start day rather than date of claim.|
|Partner allowance||20 September 1994|
|Mature age allowance or mature age partner allowance||20 March 1994|
|Carer payment||1 January 1993||
Prior to this date carer pension was a CAP if:
|Parenting payment (single)||20 March 1992|
Act reference: SSAct section 17(1)-'compensation affected payment', section 1161 Application of Part, Part 3.14 Compensation recovery
What is an SCAP
An SCAP is a pension, benefit or allowance that was granted prior to that payment type becoming 'compensation affected'. An SCAP is not subject to compensation recovery, compensation preclusion or the requirements to pursue a compensation claim.
The following table shows the effect of periodic compensation payments on the rate payable to members of a couple where one, or both members receive an SCAP.
Note: If the compensation recipient was on a CAP at the time of the compensable event the compensation is regarded as ordinary income of the couple.
|If the periodic compensation is received by the …||then the periodic compensation is treated as …|
|SCAP recipient||ordinary income for the person and, where applicable, their partner.|
|non-claiming partner||ordinary income for SCAP recipient.|
Note: If the SCAP recipient loses entitlement and subsequently reclaims that CAP or claims another CAP, then the compensation will be assessed under SSAct Part 3.14.
Act reference: SSAct Part 3.14 Compensation recovery
Policy reference: SS Guide 1.1.S.42 Saved compensation affected payment
Compensation lump sums
If a compensation recipient receives one, or a number of compensation lump sums in respect of the same compensable event, and at least one of those lump sums contains an economic loss component, then a preclusion period must be applied. This means that although the compensation recipient would otherwise be eligible for a CAP, the compensation recipient may have to repay some of that payment for a past period and may be precluded from payment for a period into the future.
If there is more than one lump sum they are added together. The preclusion period is calculated using the compensation part of the lump sum and the divisor applying at the date the last lump sum became payable. The compensation part of the lump sum is the amount awarded for the compensation recipient's actual economic loss (in judgement cases) or, where settled by consent, the amount deemed to be 50% of the lump sum.
A lump sum that solely represents arrears of PAST periodic compensation payments is NOT a lump sum payment for the purposes of Part 3.14. In this case the arrears payment is assessed as if it had been paid in the period it represents and is therefore treated as a direct deduction or ordinary income as the case may be.
Act reference: SSAct section 1169 Compensation affected payment not payable during lump sum preclusion period
Policy reference: SS Guide 4.13.2 Lump Sum Compensation
Compensation affects most social security payments
Compensation can be paid in the form of a lump sum; it can also be paid in the form of periodic payments. A compensation payment can be made in respect of economic loss (such as loss of earnings) or non-economic loss (such as a payment for pain and suffering) or both.
Compensation affects most social security income support payments and it affects all payments that are defined in the legislation as a CAP. However, compensation does NOT affect payments such as, MOB, or CA.
Special provisions in Part 3.14 allow, in certain circumstances, for all or part of a compensation payment (lump sum or periodic payment) to be treated as if it had not been made or is not liable to be made.
Act reference: SSAct Part 3.14 Compensation recovery, section 17 Compensation recovery definitions
The notification requirements for a person who receives a compensation payment, is the period of 7 days after the day on which the person becomes aware that he or she has received, or is to receive, a compensation payment.
Act reference: SS(Admin)Act section 72(3) Provisions relating to notice
Date of compensable event
The date of the event that gives rise to a person's entitlement to compensation for a disease, injury or condition is defined in SSAct section 17(5A) as:
- if the disease, injury or condition was caused by an accident - the accident, or
- in any other case - the disease, injury or condition first becoming apparent, and is not, for example, the decision or settlement under which the compensation is payable.
Each case should be investigated to ensure the appropriate date of compensable event is used if the injury was not caused by an accident.
Example 1: Laianah became aware that her shoulder was sore on 20/02/2002 but did not go to the doctor until 04/03/2002. The doctor diagnosed a strain but Laianah was able to work until 26/03/2002 when her condition prevented her from doing her usual work. Laianah claims compensation from when she is first unable to do her usual work not the date the doctor diagnosed the strain. The date of the compensable event would be 26/03/2002 the date Laianah commenced to suffer a loss of earnings.
Example 2: Trey was exposed to asbestos in 1953 and granted an age pension on 29/01/2002. He was diagnosed with a dust disease and a disability on 14/04/2003 and this was also the date the compensation authority accepted liability. The date of diagnosis is the date the disease, injury or condition first became apparent and thus is the date of compensable event in this case. As Trey was qualified and receiving a CAP at the time of the compensable event any periodic compensation paid is assessed as ordinary income.
Act reference: SSAct section 17(5A) Receives compensation
Policy reference: SS Guide 18.104.22.168 Effect of Periodic Compensation on a Compensation Recipient
Compensation as ordinary income
If compensation is assessed as ordinary income then the normal income test rules and limits apply.
Compensation that is ordinary income is NOT employment income (1.1.E.102).
If a CAP is not payable to a person because of a lump sum payment of compensation, that lump sum payment is NOT treated as ordinary income of the compensation recipient or their partner for social security purposes. Any deemed income from the investment of some or all of the lump sum IS treated as ordinary income for social security purposes.
Act reference: SSAct section 8(1A)(d) a payment of compensation …
Policy reference: SS Guide 22.214.171.124 Assessment of Compensatory Type Payments
Compensation for personal injury non-economic loss
The following table shows the assessment of non-economic loss (1.1.N.110) compensation payments.
|Non-economic loss compensation that is paid …||is assessed as ordinary income for …|
|periodically||BOTH pensions AND allowances/benefits.|
|in a lump sum||benefits in the fortnight it is received; BUT ignored for pension.|
Note: The continuing assets and income test treatment of the lump sum will be determined by how the funds are used. Any income generated by the lump sum itself is assessed as ordinary income and the assets test may apply to whatever is done with the lump sum proceeds.
- part of the lump sum is used to purchase a car, which is an assessable asset
- the lump sum is invested with a financial institution, which means that the proceeds have become a financial asset and subject to the asset and income test deeming rules.
Compensation under the provisions of Part 3.14
If the compensation is assessed under SSAct Part 3.14, and it is paid as a lump sum then it may preclude payment of pension or benefit for periods in the past as well as into the future.
If the compensation is paid as a periodic payment, then it may affect as a dollar for dollar direct deduction or as ordinary income depending on who receives the compensation and when it is received.
Note: Only the compensation recipient is affected by the dollar for dollar rate reduction provisions of Part 3.14. The dollar for dollar rate reduction does NOT affect partners, however any excess compensation after the compensation recipient's CAP is reduced to $nil is assessed as ordinary income of the compensation recipient's partner.
Act reference: SSAct Part 3.14 Compensation recovery
Compensation as an assessable asset
All lump sum payments of compensation, including those subject to the provisions of Part 3.14, are regarded as an asset of the person and their partner.
Policy reference: SS Guide 4.6 Assets