4.9.7.30 Income & Assets Test Assessment of Payments Arising from a Structured Settlement

Summary

This topic covers:

  • assessment of structured settlements after the compensation rules have been applied,
  • structured settlements paid as an income stream,
  • structured settlements paid as an immediate lump sum,
  • deferred lump sums and personal injury lump sums arising from structured settlements, and
  • personal injury annuity or annuities paid to a trust on behalf of the injured person.

Note: The TOTAL AMOUNT OF THE SETTLEMENT may be subject to the compensation rules. For more information on whether a settlement payment is subject to the compensation rules, refer to the relevant sections of the Act and Guide listed below.

Act reference: SSAct section 17 Compensation recovery definitions, section 17(3) Compensation part of a lump sum, Part 3.14 Compensation recovery

Policy reference: SS Guide 4.13.2 Lump Sum Compensation

Assessment of structured settlements after the compensation rules have been applied

After the payment has been assessed under the compensation rules, any amount remaining and income derived from the payment will be assessed under the income and assets test after the preclusion period is served. If the person has a partner, the partner of the injured person is not subject to the compensation rules but the total amount will be assessed against the partner under the income and assets test. The assessment will depend on whether they are paid as:

  • an income stream ('personal injury annuity'), or
  • an immediate lump sum, or
  • a deferred lump sum ('personal injury lump sums'),or
  • an income stream paid to a trust for the benefit of the injured person.

Structured settlements paid as an income stream

Income stream or annuity payments arising from a structured settlement that satisfy the definition of an income stream as per SSAct section 9(1), will be assessed as an INCOME STREAM.

Act reference: SSAct section 9(1)-'income stream', section 9A(1) General requirements, section 9A(2) Requirements of contract/governing rules for provision of income stream, section 9B(1) An income stream provided to a person…, section 9B(2) Requirements of contract/governing rules for provision of income stream, section 9BA(1) General requirements, section 9BA(2) Requirements of contract/governing rules for provision of income stream

Policy reference: SS Guide 4.9.1.20 General Provisions for Assessing Income Streams, 4.9.2.10 Characteristics of pre-20/09/2004 Asset-Test Exempt Income Streams, 4.9.2.15 Characteristics of Asset-Test Exempt Income Streams Purchased from 20/9/2004 & before 20/09/2007

Structured settlements paid as an immediate lump sum

UNDER THE INCOME TEST, where the amount has been taken into account in the assessment of a preclusion period, it will NOT be counted as income when paid. Where the amount is not subject to the compensation rules, the normal provisions of the income and assets test apply.

UNDER THE ASSETS TEST, it would depend on what the person does with the money. If the money is placed in a bank account or invested in a financial investment, the value is assessed as an asset and the deeming rules apply.

Act reference: SSAct Part 3.10 General provisions relating to the ordinary income test, section 8 Income test definitions, section 9 Financial assets and income streams definitions

Policy reference: SS Guide 4.3 Ordinary Income, 4.4 Deeming Provisions

Deferred lump sums & personal injury lump sums arising from structured settlements

The income and assets test treatment of 'DEFERRED LUMP SUMS' or 'PERSONAL INJURY LUMP SUMS' would depend on their characteristics.

UNDER THE INCOME TEST, where the amount has been taken into account in the assessment of a preclusion period, it will NOT be counted as income when paid. Where the amount is not subject to the compensation rules, the normal provisions of the income and assets test apply.

UNDER THE ASSETS TEST, where a deferred amount is held for the benefit of a person, it is assessed as an asset. Income could be assessed either by deeming or actual return depending on the characteristics of the amount held. Where receipt of the deferred amount is subject to a contingency, it could possibly be disregarded under SSAct section 1118(1)(h).

Act reference: SSAct Part 3.12 General provisions relating to the assets test, section 1118 Certain assets to be disregarded in calculating the value of a person's assets

Policy reference: SS Guide 4.4 Deeming Provisions, 4.6 Assets

Personal injury annuity or annuities paid to a trust on behalf of the injured person

The rules for the means test treatment of private trusts (effective from 1 January 2002) provide for the income and assets of private trusts to be 'attributed' to the persons that control these structures. However, special provisions apply to trusts that are administered exclusively for the benefit of those unable to administer their own affairs.

Example: If a trust is established to hold compensation monies for the benefit of someone incapacitated in an accident, and this trust is administered by the parents of the incapacitated person, for that person's exclusive benefit, the income and the assets of the trust will be assessed against the disabled person, not the parents.

Act reference: SSAct Part 3.18 Means test treatment of private companies and private trusts

Policy reference: SS Guide 4.12 Means Test Treatment of Private Trusts & Private Companies from 01/01/2002

Last reviewed: 6 February 2017