4.13.3.10 Overview of Periodic Compensation Payments

This topic

This topic contains general information on the following:

  • general provisions for income test concession for periodic payments of compensation,
  • treatment of non-economic loss periodic payments,
  • periodic compensation payments converted to a lump sum for a fixed period,
  • periodic payments from income protection policies,
  • salary continuance payments,
  • pre-assessment payments from ComSuper,
  • superannuation salary sacrifice payments and compensation,
  • reimbursement of medical expenses and arrears of periodic payments, and
  • periodic compensation payments - eligibility for a concession card.

Summary

Periodic compensation payments are made on a regular basis, usually fortnightly. These payments affect social security income support payments on a dollar for dollar rate reduction basis (most compensation recipients), or as ordinary income depending on the circumstances (some compensation recipients and all partners of compensation recipients). Periodic payments are deemed to be received from the date they become payable.

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.

Most periodic compensation payments affect social security income support for the period represented by the periodic compensation payment or series of periodic compensation payments. This includes situations where arrears of periodic compensation payments are made as a lump sum payment. The exceptions are where periodic compensation payments are commuted to a lump sum and where arrears or advances of periodic compensation payments are included with other types of compensation in a lump sum payment.

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

Policy reference: SS Guide 4.13.2.20 Treatment of Periodic Payments Paid as a Lump Sum

General provisions for income test concession for periodic payments of compensation

If a compensation payment falls within SSAct section 17(2) then it is assessed under the provisions of Part 3.14 and periodic compensation payments are assessed as a dollar for dollar deduction against the compensation recipient's rate of social security income support.

However, an income test concession (the treatment of periodic payments of compensation as ordinary unearned income), applies where the COMPENSATION RECIPIENT was qualified for and receiving social security income support at the time of the compensable event (4.13.1.30 see heading ' Date of Compensable Event').

This concession assists in encouraging people receiving social security income support to undertake some paid employment, without fear of losing their social security payments if they are subsequently injured.

To be eligible for the income test concession, from 20 September 2001, the INJURED PERSON MUST be qualified for and receiving a CAP at the time of their accident or injury.

Example:

  • If a payment is suspended on the date of the compensable event it would not be regarded as being in receipt of a CAP.
  • If a payment is paid at a nil rate on the date of the compensable event it would not be regarded as being in receipt of a CAP.

Act reference: SSAct section 1173 Effect of periodic compensation payments on rate of person's compensation affected payment

Policy reference: SS Guide 4.13.3.20 Effect of Periodic Compensation on a Compensation Recipient, 4.13.1.30 Effect of Compensation on Compensation Affected Payments

Non-economic loss periodic payments

Non-economic loss periodic payments are treated as ordinary income for both pensions and allowances/benefits.

Policy reference: SS Guide 1.1.N.110 Non-economic loss compensation, 4.13.1.10 What is Compensation

Periodic payments converted to a lump sum for a fixed period

Some compensation schemes allow employers or liable parties to convert their liability 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, divide the amount by the number of fortnights in the period.

Example: Amounts payable under the South Australian Workers' Rehabilitation and Compensation Act 1986 section 42A.

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

Policy reference: SS Guide 4.13.2.20 Treatment of Periodic Payments Paid as a Lump Sum

Periodic payments from an income protection policy

Payments from income protection policies or sickness and accident policies, including payments in respect of a sporting injury that are due to lost earnings or lost capacity to earn are compensation unless they meet the exemption in the legislation. If this exemption is met these payments are treated as ordinary income.

The exemption from the compensation provisions applies if:

  • the person has made contributions to the policy, AND
  • the payments are NOT reduced by any amount of social security payment otherwise payable (i.e. the policy does not contain an offset clause, or the policy does contain an offset clause but it has not been invoked).

Example 1: Payments under sporting accident policies are not compensation if the injured person was a member of the amateur club that purchased the policy. However if the sporting accident policy has an offset clause, payments under this policy are regarded as compensation.

Example 2: Payments from an employer subsided scheme, with no offset clause, where opting out would mean a pay rise is treated as income.

Note: Disability pensions paid from superannuation funds, whether or not there is an offset clause, are NOT compensation. This includes payments made under a sickness and accident policy and/or income protection policy when paid from a superannuation fund, whether funded by the person, or another party (e.g. their union or employer).

Act reference: SSAct section 17(2A) Paragraph (2)(d) does not apply to a compensation payment if…, section 23(1)-'social security payment'

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

Salary continuance payments

Some employers also provide salary continuance payments that are essentially a form of self-insurance undertaken by the firm for staff who are unable to work because of illness or injury. As these payments are made in respect of lost earnings or lost capacity to earn they are compensation unless they meet the exemption in the legislation.

For an exemption from the compensation provisions to occur the person has to make contributions to the policy, AND the payments from the policy are NOT reduced by any amount of social security payment otherwise payable (i.e. the policy does not contain an offset clause, or the policy does contain an offset clause but it has not been invoked).

It is sometimes unclear who has made contributions to salary continuance payments. Differing circumstances were discussed in 2 AAT cases Macri (AATA 175) and Oprea (AATA 678). In Macri they would NOT have got a pay increase if they opted out of the scheme but in Oprea they would have received a pay rise if they had opted out of the scheme.

The following table gives a guide to the treatment of salary continuance payments in circumstances where it is not clear who has made contributions and assumes there is no offset clause or it has not been invoked.

If the employee opted out of the continuance or other scheme and this… Then the payments from the continuance or other scheme would be treated as…
resulted in a pay rise, income.
did not result in a pay rise, compensation.

When the payments are not based on lost earnings or lost capacity to earn, they are treated as trauma payments - see 4.3.9.30.

Example 1: Included in a person's total salary packaging payments are payments for a salary continuance policy. The person considered that they had made contributions to this policy. On contacting the employer they stated that, if the person had decided to withdraw from the scheme, there would be no change to their rate of pay.

This salary continuance payment is treated as compensation.

Example 2: Included in a person's total salary packaging payments are payments for a salary continuance policy. The person considered that they had made contributions to this policy. On contacting the employer they stated that, if the person had decided to withdraw from the scheme, they would have received a higher rate of pay.

This salary continuance payment is treated as income.

Act reference: SSAct section 17(2A) Paragraph (2)(d) does not apply to a compensation payment if…

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

Pre-assessment payments from ComSuper

Pre-assessment payments are paid to injured workers who have exhausted all paid personal leave and have submitted his or her invalidity retirement request to ComSuper, but are awaiting a decision from ComSuper.

These payments whether paid by way of lump sum, or paid periodically are caught by the definition of compensation.

Act reference: SSAct section 17(2) Compensation

Superannuation salary sacrifice payments & compensation

Where the employee makes contributions to superannuation there is no salary sacrifice. Worker's compensation payments are paid by state or territory law to an injured worker and in some schemes the compensation payments are also paid to the worker by their employer.

For superannuation salary sacrifice to occur the employer must be the party liable to make the contributions, the fact that the worker elects to have their employer direct some of their compensation into a superannuation fund does not constitute a salary sacrifice.

Reimbursement of medical expenses & arrears of periodic payments

Where lump sums of arrears or periodic payments are made with a reimbursement of medical expenses or payment of medical expenses to a third party, the arrears are still treated as if they had been paid throughout the period that the arrears represent (i.e. do not treat as a lump sum payment).

Example: Amounts payable under the New South Wales Workers Compensation Act section 60.

Periodic compensation payments - eligibility for a concession card

Recipients of periodic compensation payments who remain eligible for a social security payment are automatically eligible for either a HCC or a PCC. If a social security payment is NOT payable, they MAY still be eligible for a CSHC or a LIC.

Act reference: SSAct section 1071A Health care card income test calculator, section 1071 Seniors Health Card Income Test Calculator

Policy reference: SS Guide 3.9.1.10 Qualification for HCC - Automatic Issue, 3.9.1.70 LIC - assessment of income, 3.9.3.30 Assessment of income for CSHC, 4.13.1.60 Effect of Compensation on Low Income Health Care Cards

Last reviewed: 3 July 2017