Compensation and damages payments

Based on the contribution of Faisal Bakhtiar, Rosalinda Casamento and Olympia Sarrinikolaou, Victoria Legal Aid, as amended by Genevieve Bolton, Executive Director/Principal Solicitor of Canberra Community Law and current to 30 April 2018

Section 17 and part 3.14

Compensation payments are treated differently under social security law. Section 17(2) (SSA) defines “compensation” for social security purposes. To be considered “compensation” for social security purposes the payment must include a component for economic loss. Centrelink will look at the settlement and decide whether this is the case. Otherwise, such payments will generally be treated as ordinary income.

A person who receives compensation will have their “compensation-affected payment” affected (most major payments are compensation-affected), depending on whether they receive compensation in the form of a periodic payment, or as a lump sum settlement or court judgment.

A person who is receiving periodic payments of compensation for a loss of income will have their “compensation-affected payment” reduced by the amount of those payments on a dollar-for-dollar basis. The dollar-for-dollar rule does not apply to a person who was in receipt of a compensation-affected Centrelink income support payment at the time of the injury or illness which gives rise to the periodic compensation payments. In this case, periodic payments are treated as ordinary unearned income for the compensation recipient and are subject to the relevant income test.

Where a person recovers compensation in a lump sum, the person is precluded from receiving a social security payment for a period that is directly related to the amount of compensation or damages.

The amount that Centrelink is entitled to recover in either of these ways will depend upon a formula set out in the SSA. This is a complex area and any specific queries should be taken to the solicitor who is handling the damages or compensation claim.

Where a person has been receiving a compensation-affected payment and later recovers compensation covering the same period, the person is liable to repay the social security payments. Usually Centrelink will recover the social security money paid to a person from the employer or insurance company.

If Centrelink decides that there are special circumstances relating to the person receiving compensation, it can treat some or all of the compensation paid as not having been paid. This decreases the preclusion period or the amount to be repaid to Centrelink, or both.