4.13.2.60 Lump Sum Preclusion Period - General

This topic

This topic contains information on the following:

  • how lump sum compensation payments are decided,
  • rationale for the lump sum preclusion period,
  • when is a compensation lump sum taken to be received,
  • when a preclusion period applies to a partner,
  • duration of the lump sum preclusion period,
  • preclusion period formula and divisor, and
  • preclusion period and divisor for multiple lump sums.

Summary

This topic provides general information on the lump sum preclusion period and the formula used to calculate the preclusion period. Compensation recipients who would otherwise qualify for a CAP are excluded from payment for the lump sum preclusion period.

How lump sum compensation payments are decided

A lump sum compensation payment that includes economic loss due to personal injury, may be decided by a court or tribunal, it may be arbitrated, or it may be agreed by settlement between the parties. Settlement is the most common way that lump sum compensation payments are decided.

The manner in which the matter is decided can affect when the lump sum is deemed to have been received. It can also affect the amount used to calculate the compensation preclusion period, the compensation part of the lump sum, and whether the 50% rule is to be applied.

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

Rationale for the lump sum preclusion period

The compensation provisions of SSAct Part 3.14 reflect the principle that if a person has been compensated for loss of income, they should use that money to live off rather than receive a taxpayer-funded payment. Lump sum compensation payments are treated on the basis that people who cannot work because of a compensable injury should NOT receive income support for the same period from both the:

  • social security system, AND
  • compensation systems.

This reflects the view of successive Australian Governments that primary responsibility for the support of people who are incapacitated because of a compensable illness or injury rests with the relevant State or Territory compensation schemes, and not with taxpayer funded social security programs.

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

When is a compensation lump sum taken to be received

The following table shows when a lump sum compensation payment is deemed to have been received.

If a compensation claim has been… Then the lump sum is deemed to have been received on the date…
decided on by a court or tribunal, the amount is payable (date of settlement).
arbitrated, the amount is payable (date of settlement).
settled by agreement between the parties, the agreement has been finalised AND the funds become payable (date of settlement). (This is because a settlement usually requires the agreement to be registered with an appropriate court, tribunal, or statutory authority and comply with other legal requirements.)

When a preclusion period applies to a partner

Under the compensation provisions of SSAct Part 3.14, lump sum compensation payments made on or after 20 March 1997 affect ONLY the compensation recipient's CAP, not their partner's CAP.

Prior to 20 March 1997 partners were subject to the compensation provisions and any CAPs paid to the partner were recoverable.

The following table explains the effect of lump compensation on a partner.

If… Then…
lump sum paid after 20 March 1997, partner is not subject to the preclusion period.
lump sum paid prior to 20 March 1997 and couple were a member of a couple at the time of receipt of the lump sum and they claimed or received a CAP, partner is subject to the preclusion period.
lump sum paid prior to 20 March 1997 and couple were a member of a couple at the time of receipt of the lump sum and they claimed or received a CAP but at a later date separated (however if they reconcile the partner will be subject to a preclusion period), partner is not subject to the preclusion period.
lump sum paid prior to 20 March 1997 and couple were not a member of a couple at the time of receipt of the lump sum and they claimed or received a CAP, partner is not subject to the preclusion period.

Act reference: SSAct section 1178 Repayment of amount where both lump sum and payments of compensation affected payment have been received, Part 3.14 Compensation recovery

Policy reference: SS Guide 6.4.3 Recovery Rules Specific to Lump Sums

Duration of the lump sum preclusion period

The lump sum preclusion period MUST be a continuous period, NOT adjusted for periods:

  • for which sick leave has been paid, OR
  • when the compensation recipient:
    • is fit, OR
    • has temporarily recovered from the disease, injury or condition.

Preclusion period formula & divisor

The 'preclusion period' is the period of time that the compensation recipient is unable to receive a social security income support payment because of their lump sum payment. The preclusion period is calculated by dividing the compensation part of the lump sum payment by the divisor applying at the time the lump sum is/was received (date of settlement). The result is a period of complete weeks, with broken periods rounded down to the nearest whole week.

The following table explains which divisor to apply to the compensation part of the lump sum in order to work out the preclusion period.

If the compensation lump sum is/was received… Then the compensation part of the lump sum is divided by…
on or after 20 March 1997, the income cut-out amount applying AT THE TIME THE LUMP SUM IS RECEIVED. (The income cut-out amount is the amount above which no pension is payable to a single person under the ordinary income test (1.1.O.30)).
before 20 March 1997, the all persons' total weekly earnings, as published by the ABS, applying AT THE TIME THE LUMP SUM WAS RECEIVED.

Act reference: SSAct section 17(8)-'income cut-out amount', section 1170 Lump sum preclusion period, Schedule 1A clause 134(9) Average weekly earnings

Preclusion period & divisor for multiple lump sums

If more than one lump sum is made in respect of the same compensable event, and the lump sums are aggregated, then the divisor applying at the time of the most recent lump sum is used to recalculate the preclusion period. Each time a subsequent lump sum is paid, the divisor applying at that later time is used to recalculate the preclusion period.

Act reference: SSAct section 1171(1) Deemed lump sum payment arising from separate payments

Policy reference: SS Guide 4.13.2.50 Aggregation of Multiple Lump Sums

Last reviewed: 3 July 2017