4.13.2.20 Treatment of Periodic Payments Paid as a Lump Sum

This topic

This topic contains information on the following:

  • lump sum paid as a redemption of periodic payments (no fixed period),
  • lump sum paid as a redemption of periodic payments (fixed period),
  • lump sum paid solely as arrears of periodic payments, and
  • lump sum including arrears or advances of periodic payments and other components.

Summary

Most periodic compensation payments affect social security income support for the period represented by the periodic compensation payment or series of periodic compensation payments. Some periodic compensation payments that are paid in the form of a lump sum are still treated as periodic compensation for the period they represent. However, some lump sums that represent or include a periodic compensation amount must be assessed as lump sums and the periodic compensation cannot be excised. This topic explains how to treat lump sums that represent periodic compensation payments.

Note: From 20 September 2001 the effect on the partner of a compensation recipient changed. For partners of compensation recipients the excess periodic compensation is treated as other ordinary income.

Lump sum paid as redemption of periodic payments (no fixed period)

A lump sum that is paid as a commutation or redemption of an entitlement to periodic payments, without reference to a fixed period of time is NOT quantifiable as a periodic payment. In this case the amount is assessed as a compensation lump sum.

Act reference: SSAct section 17(3) Compensation part of a lump sum, section 1160 General effect of Part

Policy reference: SS Guide 4.13.2 Lump Sum Compensation

Lump sum paid as redemption of periodic payments (fixed period)

Some compensation schemes allow employers or liable parties to convert their liability, to which a person was entitled under a law of a state or territory, to pay periodic payments for a fixed period into a lump sum payment.

This is a quantifiable amount over a fixed period and is treated as if the payments had been made continuously throughout the period in question.

To convert the lump sum into a fortnightly payment for assessment purposes, for that period, divide the amount by the number of fortnights in the specific period.

Act reference: SSAct section 1164 Certain lump sums to be treated as though they were received as periodic compensation payments

Lump sum paid solely as arrears of periodic payment

A lump sum that SOLELY represents arrears of past periodic payments is:

  • NOT a lump sum compensation payment under SSAct Part 3.14, AND
  • is assessed as if the periodic payments had actually been paid in the period that the arrears represent.

When the rate of periodic compensation varies above and below the CAP rate (paid to compensation recipient and partner) in the periodic payments period, they are assessed as if paid in the period they represent. Each period of variation is treated as a separate periodic payment period in calculating the charge (1.1.C.270) for both the compensation recipient and the partner. The aggregate of all the various periods is the final charge served on the relevant party. When CAP payments and compensation payments overlap, the lower amount of the 2 types of payment in the period is the recoverable amount.

Act reference: SSAct section 17(1) Compensation recovery definitions, section 17(4A) For the purposes of this Act, a payment of arrears of periodic compensation payments…, section 1180 Repayment where both periodic compensation payments and payments of compensation affected payments have been received

Policy reference: SS Guide 4.13.3.10 Overview of Periodic Compensation Payments, 4.13.3.20 Effect of Periodic Compensation on a Compensation Recipient, 4.13.3.30 Effect of periodic compensation on the partner of a compensation recipient

Lump sum including arrears or advances of periodic payments & other components

If arrears or advances of periodic payments are included in a lump sum payment with other compensation components, such as pain and suffering payments, medical costs, interest etc, those components CANNOT be separated to calculate their individual effects under the Act. This means that a lump sum of periodic payments in these circumstances must be assessed as part of the larger lump sum.

This contrasts with the situation where payments are made as a result of a judgment by contested hearing and the delegate can use the amounts awarded specifically for economic loss to determine the compensation part of the lump sum.

Act reference: SSAct section 17(3) Compensation part of a lump sum

Policy reference: SS Guide 4.13.2.30 Compensation Part of Lump Sum - 50% Rule, 4.13.2.40 Compensation Part of Lump Sum - Judgement by Contested Hearing

Federal Court decision Secretary to the Department of Social Security v Roberta Rosa Cunneen [1997] FCA 1033

Last reviewed: 3 July 2017