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Treatment of Certain Lump Sum Compensation Payments

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Additional lump sums for same compensable event

    

A pensioner is taken to have received one lump sum if:

  • two or more lump sum compensation payments are received for the same compensable event, and
  • at least one of the payments is made wholly or partly for economic loss.

In this case, the lump sum preclusion period is calculated by aggregating the lump sum amounts. The aggregated lump sum is taken to have been made on the day on which the last lump sum was received.

Additional lump sums for different compensable events

If lump sums are received in respect of different compensable events, separate lump sum preclusion periods are calculated in respect of each event. In some cases, preclusion periods can overlap.

Lump sum received after receipt of periodic compensation payments

Where a person receives both a periodic compensation payment and a lump sum compensation payment, the lump sum preclusion period commences from the day after the periodic compensation payments cease. This is regardless of:

  • whether or not the lump sum and the periodic payments are paid for the same illness, injury or condition or for two or more different injuries or conditions, and
  • any time which may have elapsed between the date the periodic compensation payments cease and the date the lump sum compensation payment is made.
Arrears of periodic payments paid as a lump sum

    

A lump sum payment of arrears of periodic payments is not regarded as a lump sum compensation payment. A preclusion period is not applied in respect of this type of payment. The treatment of arrears of periodic payments paid as a lump sum is detailed below:

If...

Then...

the payment is paid in respect of periods during which the person also received a CAP and the person was not, at the time of the event giving rise to the entitlement to compensation, receiving a CAP

  • deductions can be applied to the CAP as though they were periodic compensation payments; or
  • if no such deductions have been applied, any compensation affected component of pension can be recovered from the pensioner.

the person was already in receipt of CAP at the time of the event giving rise to their entitlement to compensation

the person is taken to have received on each day of the period to which the compensation relates, an amount of ordinary income that is calculated by dividing the amount of the lump sum by the number of days in that period and the amount held in the pension assessment for the period.    

Certain lump sums to be treated as though they were received as periodic payments

    

Where a person's entitlement to periodic payments is converted under the law of the State or Territory into a lump sum, and the amount is calculated by reference to a set period, the lump sum is converted to periodic compensation payments for the set period covered by the lump sum. The amount of periodic compensation that the person is taken to have received in each fortnight of the compensation period is equal to:

Lump sum amount

No. of whole fortnights in the period

Impact on lump sum when periodic payment repaid

    

If a person becomes liable to repay an amount of periodic compensation due to receiving a lump sum compensation payment in respect of the same lost earnings or capacity to earn, then the amount of the lump sum compensation payment is considered equal to the lump sum payment minus the repaid amount of periodic compensation.

Lump sum compensation not considered as income

    

If a person who has received a lump sum compensation payment has a preclusion period applied that lump sum is not regarded as ordinary income of either the person or the person's partner. However, the lump sum may form part of the person's assets.

Lump sum previously assessed as income

If a lump sum compensation payment was previously assessed under the income and assets tests (usually because the lump sum was not subject to the compensation provisions at that time), it is not to be reassessed under the compensation provisions for any later pension claims. It may form part of the person's assets, for example if invested in a financial asset. In this example, any deemed income derived from investment of the lump sum is regarded as income.


According to subsection 5NB(1) of the VEA a compensation affected pension means:

  •       an invalidity service pension payable to a person who has not reached pension age; or
  •       a partner service pension payable to a person who has not reached pension age; or
  •       an income support supplement payable to a person who has not reached qualifying age.

 

 

An event is an incident or change in circumstances that may cause a change in income support entitlement. The 'date of event' is the day on which this event occurs.

A payment to make amends for loss or injury to a person or property, or as a recompense for some deprivation (such as compensation to the owner for compulsory acquisition of their property).

According to subsection 5NB(1) of the VEA a compensation affected pension means:

  •       an invalidity service pension payable to a person who has not reached pension age; or
  •       a partner service pension payable to a person who has not reached pension age; or
  •       an income support supplement payable to a person who has not reached qualifying age.