4.13.1.20 Assessment of compensatory type payments

This topic

This topic contains information on the following:

• compensation/compensatory payments assessed as ordinary unearned income
• treatment of compensation/compensatory payments assessed as ordinary unearned income
• disability benefits paid from superannuation funds
• lump sums exempt under section 8(11), and
• payments which are compensatory in nature - specifically excluded as income under section 8(8).

Summary

If a compensation payment does not come within the SSAct section 17(2) definition of 'compensation' then it is assessed as ordinary unearned income unless it is subject to an income test exemption. Exactly how the compensation affects social security payments depends on whether the compensation is paid as a lump sum or as a periodic payment.

Periodic compensation that falls within the section 17(2) definition of compensation affects the compensation recipient under SSAct Part 3.14. However, for some compensation recipients, the periodic compensation payment will still be assessed as ordinary unearned income. Periodic compensation may affect a compensation recipient's partner but only the excess, after the compensation recipient's rate is reduced to nil, is treated as the partner's ordinary unearned income.

Compensation assessed as ordinary unearned income is NOT employment income (1.1.E.102).

Some compensation payments may not be assessed as 'ordinary unearned income' OR compensation, see 'Payments which are compensatory in nature - specifically excluded as income under section 8(8)' below, or 4.3.2.35 for lump sums exempt under section 8(11).

Compensation/compensatory payments assessed as ordinary unearned income

A compensation payment is assessed as ordinary unearned income if it does not fall within the SSAct section 17(2) definition of compensation and is not otherwise an exempt payment (for instance, under a section 8(11) determination).

This may include payments which are compensatory in nature but do not contain economic loss due to personal injury.

Note: None of the above payments are compensation for the purposes of SSAct Part 3.14.

Treatment of compensation/compensatory payments assessed as ordinary unearned income

The following table shows how payments that are compensatory in nature are assessed as ordinary unearned income for allowances/benefit and pensions:

* If a lump sum is received instead of periodical payments and the lump sum is calculated at a set weekly, fortnightly or monthly rate over a specific period, the payment is treated as if periodical payments were being made throughout the relevant period.

Disability benefits paid from superannuation funds

A regular/periodic disability benefit paid from a superannuation fund where the payment is based on a person's entitlement from an insurance policy, whether or not there is an 'offset' clause, is assessed as ordinary income. This includes regular, ongoing payments made under a sickness and accident policy, income protection policy (IPP) or total and permanent disability (TPD) or total and temporary disability (TTD) policy when paid from a superannuation fund, whether funded by the person, or another party (e.g. their union or employer).

A lump sum disability benefit paid from a superannuation fund is not assessed as income. Depending on what the income support recipient uses the lump sum amount for, further assessment may be necessary.

Some payments that are compensatory in nature are specifically exempted from the income test under social security law, either:

• under the provisions of section 8(11) (determinations to exempt lump sums), or
• under section 8(8) (legislative exclusions).

Lump sum payments which are compensatory in nature specifically excluded as income under section 8(11)

Some lump sums are NOT treated as income for social security purposes. Section 8(11) determinations allow for the Secretary of DSS to exempt certain lump sums that are not periodic amounts, leave payments or income from remunerative work.

For the full list of lump sum payments exempted under section 8(11) please see 4.3.2.35.

Payments which are compensatory in nature - specifically excluded as income under section 8(8)

Some payments to compensate for adverse circumstances are specifically excluded as income under SSAct section 8(8), whether they are received as lump sums or as periodic payments. These payments are:

• emergency relief or like assistance
• loss or damage to buildings, plant or personal effects
• a medically acquired HIV trust such as The Mark Fitzpatrick Trust or the NSW Medically Acquired HIV Trust
• restitution payments to victims of National Socialist (Nazi) persecution
• payments made by the Thalidomide Australia Fixed Trust
• VEA Disability Compensation Payment (formerly known as disability pension) which is a pension under Part II or IV of the VEA (other than a pension that is payable under section 30 to a dependant of a deceased veteran)
• Saved pensions from the precursor to the VEA which are payable because of subsection 4(6) or (8B) of the Veterans' Entitlements (Transitional Provisions and Consequential Amendments) Act 1986 (other than a pension payable in respect of a child)
• MRCA permanent impairment payment, either weekly or lump sum - which is a payment (either as a weekly amount or a lump sum) under section 68, 71, 75 or 80 of the MRCA (permanent impairment), and
• MRCA Special Rate Disability Pension under Part 6 of Chapter 4 of the MRCA.