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 (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 event) (e.g. 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 only allowable deduction is periodic compensation that must be repaid because of the lump sum payment. The gross lump sum depends on the terms of the award or settlement. 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 past periodic payments that are liable to be repaid

Example: Settled for $300,000 with any past periodic payments to be repaid.

applies to the lump sum payment (LSP) less the repaid periodic compensation payments (RPCP), i.e. the amount of the lump sum compensation payment is:

LSP - RPCP.

includes legal and medical costs in the gross settlement

Example: Settled for $200,000 inclusive of legal and medical costs.

applies to the total lump sum payment.
includes an ADDITIONAL amount for legal and/or medical costs applies to the total lump sum payment including the additional amount.

excludes legal costs from the lump sum payment

Example: Settled for $125,000 exclusive of legal costs. The legal costs are fixed at $7,250.

applies to the total lump sum payment i.e. the 2 separate lump sum payments are aggregated.

excludes costs from lump sum payment but costs not determined at date of settlement

Example: Settled for $125,000, costs to be determined.

applies to the lump sum payment at date of settlement (when these costs are determined at a later date, they are not assessed for compensation purposes).
includes Centrelink charges (indemnities) specified or unspecified
  • applies to the lump sum payment plus the amount specified, OR
  • applies to the lump sum payment plus the amount calculated by Centrelink if unspecified.

includes an amount for tax either:

  • deducted from periodic payments, OR
  • payable on a past economic loss amount
applies to the total lump sum payment including the tax amount.

Act reference: SSAct section 17(3) Compensation part of a lump sum, section 17(4) Where a person: …

Policy reference: SS Guide 4.13.2 Lump Sum Compensation

Last reviewed: 20 March 2020