6.4.2 Overview of Recovery Rules
This section contains the following topics to explain the recovery rules for CAPs:
- authority to recover CAPs,
- serving a preliminary notice,
- serving a recovery notice,
- liability of insurer and compensation payer,
- statutory obligations of an insurer and compensation payer,
- bankruptcy of compensation recipient and recovery from insurer or compensation payer,
- circumstances when recovery is sought from a compensation recipient,
- compensation and FTB, and
- recoverable additional payments.
Authority to recover CAPs
The authority to recover CAPs from a compensation recipient is in the referenced sections of the Act.
Act reference: SSAct section 1178 Repayment of amount where both lump sum and payments of compensation affected payment have been received, section 1180 Repayment where both periodic compensation payments and payments of compensation affected payment have been received
Serving a preliminary notice
A preliminary notice is an advice that some or all of the CAPs may be recoverable on settlement of a compensation (1.1.C.240) claim. It can be served on a:
- compensation payer, AND/OR
Note: A preliminary notice should ONLY be sent to a compensation payer and insurer when there is doubt about which one will actually pay the compensation.
Act reference: SSAct section 1182 Secretary may send preliminary notice to potential compensation payer or insurer, section 1183 Potential compensation payer or insurer must notify Secretary of liability
Serving a recovery notice
A recovery notice is an advice of the amount of CAPs that are to be recovered from a compensation payment. When Centrelink is advised of the compensation payment:
- the charge (1.1.C.270) is calculated, AND
- a recovery notice is served on the appropriate party.
Example: The insurance company, compensation payer or, in rare cases, the compensation recipient.
If a preliminary notice was NOT served before a claim is settled, the recovery notice should be served on whoever is liable to make the payment, if the funds have NOT already been released to the person who claimed compensation.
A recovery notice, under section 1178 or 1180, CANNOT be served to a deceased payee or to the personal representative, executor or the deceased estate.
Act reference: SSAct section 1184 Secretary may send recovery notice to compensation payer or insurer
Liability of insurer & compensation payer
The liability of both the insurer and the compensation payer is limited to the lesser of:
- for the insurer:
- the gross amount for which they remain liable to indemnify the compensation payer, after receipt of a preliminary or recovery notice, OR
- for BOTH, the:
- compensation part of the lump sum, OR
- amounts of the periodic payments, OR
- amounts of the CAPs paid to the compensation recipient and, where applicable, the partner during the lump sum preclusion period or periodic payments period.
Act reference: SSAct section 1184A The section 1184 recoverable amount
Statutory obligations of a compensation payer or insurer
A compensation payer or insurer is obliged to notify Centrelink in writing within 7 days of the later of the date that they:
- become liable to pay compensation, OR
- are served with a preliminary notice.
Some insurers and compensation payers release compensation payments to a compensation recipient's solicitor on the undertaking that the solicitor will deduct Centrelink's charge before paying the compensation recipient.
A compensation payer who releases an amount in contravention of a served preliminary or recovery notice is STILL liable to refund the full amount specified in the notice UNLESS they have either:
- paid the Commonwealth the full amount of their liability, OR
- been released from their liability.
Act reference: SSAct section 1184D Offence to make compensation payment after receiving preliminary notice or recovery notice, section 1184H Debts resulting from contravention of section 1184D
Bankruptcy of compensation recipient & recovery from insurer or compensation payer
Where the compensation insurer/payer has been served with a recovery notice the compensation insurer/payer remains liable to pay the Commonwealth the amount specified in this notice.
If the compensation recipient becomes bankrupt, and the compensation insurer/payer has been served with a recovery notice, the compensation insurer/payer rather than the compensation recipient is the debtor to the Commonwealth. Therefore the 'debt' is not part of the compensation recipient's bankruptcy.
Act reference: Bankruptcy Act 1966 section 82 Debts provable in bankruptcy
Circumstances when recovery is sought from a compensation recipient
Recovery of CAPs from a compensation recipient should ONLY occur when:
- the insurer or compensation payer released the compensation payment, AND
- the compensation recipient FAILED to notify Centrelink that they claimed compensation, AND a preliminary notice was NOT served, OR
- the compensation recipient NOTIFIED Centrelink that they claimed compensation, BUT a preliminary or recovery notice was NOT served, or was served incorrectly, OR
- the compensation recipient failed to notify Centrelink of an increase in the rate of periodic compensation, OR
- the compensation recipient's compensation was awarded or settled overseas, OR
- the compensation recipient received an ex gratia payment.
Any amount to be recovered from a person MUST be recorded as a compensation debt.
Compensation & FTB
The compensation provisions of Part 3.14 do not affect FTB. If a compensation recipient is eligible, FTB is payable during a:
- lump sum preclusion period, OR
- period when payment is precluded by a direct deduction.
However, when compensation payments are taxable, they are taken into account under the FTB income test.
Policy reference: FA Guide 1.1.C.50 Compensation
Recoverable additional payments
The following additional payments are recoverable: