C14/2008 'Loss' for the purposes of sections 23(1)(c) and 24(1)(c)

Purpose

The purpose of this Instruction is to clarify what income is to be taken into account when determining whether a person has suffered 'loss' for the purposes of sections 23(1)(c) and 24(1)(c) of the Veterans' Entitlements Act 1986 (VEA).

Sections 23(1)(c) and 24(1)(c)

Section 23(1) (c) of the VEA and Section 24(1) (c) of the VEA set out part of the eligibility criteria for the Intermediate and Special Rates of the Disability Pension, respectively.  They read as follows:

The veteran is, by reason of incapacity from war-caused injury or war-caused disease, or both, alone, prevented from continuing to undertake remunerative work that the veteran was undertaking and is, by reason thereof, suffering a loss of salary or wages, or of earnings on his or own account, that the veteran would not be suffering if the veteran were free from that incapacity. [Emphasis added]

Issues

Two questions have recently been raised about the criteria set out in sections 23(1)(c) and 24(1)(c):

1. do we look at actual or potential salary, wages and earnings when determining loss?
2. has someone with Income Protection Insurance suffered loss?

What is 'loss'?

Sections 23 and 24 of the VEA require that a person suffers loss of salary, wages, or of earnings on his or her own account, in order to be eligible for the Intermediate and Special Rates of disability pension, respectively.

In determining whether or not someone has suffered loss, the Delegate must consider only loss of salary, wages or earnings specifically and not of income as a whole.  The loss considered must only be loss as a direct result of a person's inability to work.

For a person to have suffered loss, they must have suffered:

• a reduction of what he or she might reasonably be expected to earn had that person not been incapacitated.  This not only includes loss of existing employment, but also the inability to obtain employment that the veteran might reasonably have expected to obtain had the incapacity not occurred; and
• 'substantial' loss.

In order for a person to have met the 'loss' test, the Delegate must therefore be satisfied that the veteran has suffered a 'substantial' reduction of the salary, wages or earnings that the veteran might reasonably be expected to earn if the veteran had not been incapacitated.

There is no definitive provision in law on the issue of how big a loss must be in order for it to be considered 'loss' for the purposes of the VEA.  However, to determine whether a person's loss is 'substantial', the Delegate may take into account things such as the percentage of the person's salary, wages or earnings represented by the 'loss' and the effect that the loss would have on the person's lifestyle.

For example, if a person could have reasonably been expected to earn $2,100 per fortnight in the absence of their accepted disabilities, but with their accepted disabilities they are able to earn $2,000 per fortnight, the reduction of $100 is 4.8% of their potential income, and the Delegate may decide that this is not a 'substantial' loss.  However, if the person could reasonably be expected to earn $300 per fortnight in the absence of their disabilities, but with their accepted disabilities, they can only earn $200 per fortnight, the reduction of $100 is 33.3% of their potential income and may be considered 'substantial'.

'Actual' or 'potential' income?

Advice from Legal Services Group is that a person's potential income must be taken into account when determining loss, as a person's actual income immediately prior to their application for Special Rate may have already been reduced as a result of their service-related injury.

What is counted as 'potential income'?

There are some limitations to what is considered 'potential income', as follows:

• It can only take into account jobs that the person has actually worked in. For example, they may have worked as a teacher, which means that with their qualifications they could have worked as a public servant, but if they had not actually worked as a public servant at any time in the past, then their potential income as a public servant could not be taken into account.
• It can only take into account the income the person could have earned with their existing skills and experience if they did not have their service-related condition.  It does not include jobs they could have performed with skills they could have gained if they did not have their service-related condition, such as on the job training or further study.
• It does not include 'potential increase in income' - for example promotion - except if it would have been a natural progression in their past actual employment without the need to gain extra skills/qualifications (for example if pay went up relative to the time you worked in the job rather than because of further skills gained)
• It only includes 'reasonable' potential income. In determining what someone's potential income was, you must look at the average situation for someone of their age, skills and qualifications, not at outstanding or unique examples.

In determining potential income you must consider the person's post-service employment first, and only consider their pre-service employment if their post-service employment was erratic or non-existent.

NOTE: In determining 'loss' we are only interested in the veteran's potential income without their service-related conditions.  If they have any non-service related conditions, they would still be taken into account in determining what and how much work the person could potentially do.

What if the veteran doesn't have specific skills or experience?

If the veteran had few or no qualifications and worked in multiple positions, and their pre-service employment was similar, you may have to take their actual income into account unless there is a clear way to determine potential income.

Can a person meet the legislative requirements if they have Income Protection Insurance?

The question of whether a person can be eligible to receive Intermediate or Special Rate disability pension if they are in receipt of Income Protection Insurance comes down to whether or not Income Protection Insurance comes under the definition of 'salary, wages or earnings on his or her own account'.

Income Protection Insurance is purchased, like other insurance, by paying premiums.  It is based on a person's salary, wages or earnings while in employment, and replaces the person's salary, wages or earnings if the person ceases to receive them due to illness or injury.  It is usually limited to a fixed period, for example five years.

Advice from Legal Services Group indicates that Income Protection Insurance does fit within the definition of 'salary, wages or earnings on his or her own account' as it takes on the character of the income it is replacing.

This means that the Delegate must take into account the income a person is receiving from Income Protection Insurance in determining whether that person has suffered 'loss'.  However, they must adjust this amount against the amount the veteran originally paid in premiums to purchase the insurance (see below).

Taking Income Protection Insurance into account

As Income Protection Insurance is purchased, the cost of the policy as well as its value must be taken into account when determining if a veteran who has Income Protection Insurance has suffered loss.

In order to determine the amount of Income Protection Insurance that can be taken into account when determining 'loss', the Delegate must offset the value of the veteran's policy against the cost of the premiums paid by the veteran.  In order to do this, the amount paid in premiums must be made comparable to the policy value by adjusting it by the Consumer Price Index (available on the Australian Bureau of Statistics website at www.abs.gov.au).  The value of the policy that remains once the cost of the premiums has been deducted is the amount that must be considered in determining whether the veteran has suffered 'loss'.

In all cases involving Income Protection Insurance, the Delegate must inform the claimant of the process and advise them that the time taken to process is dependant on receiving information from their insurer.

Satisfying the 'Alone' test

In cases where a veteran is in receipt of Income Protection Insurance, the Delegate should consider any information in the Income Protection Insurance policy that would indicate what conditions caused the veteran to cease work and the policy to come into effect.

In order for a veteran to be eligible for Special Rate or Intermediate Rate disability pensions, the Delegate must be satisfied that the veteran has ceased work due to his or her war-caused injuries or diseases alone.

If the Income Protection Insurance is being paid in relation to a condition that is not accepted, this must be taken into account when deciding whether the veteran has a reduced capacity to work due to his or her accepted disabilities alone.

Contact

Any enquiries about this Instruction or clarification on this issue should be directed to VEA Compensation Policy Section at the ACT location.