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Compensation Payments Excluded from Part IIIC Compensation Recovery Provisions
Last amended: 1 June 2022
Compensation payments directly impacting on Part II or IV pensions or MRCA payments
Where a person receives a compensation payment for economic loss, it will be assessed under Part IIIC, provided it does not affect the rate of Disability Compensation Payment or War Widow(er)'s Pension. Any portion of a lump sum or periodic compensation payment that has been taken into account to limit a person's Disability Compensation Payment or War Widow(er)'s Pension is excluded from Part IIIC compensation recovery provisions.
If compensation affects a person's service pension, veteran payment or income support supplement under Part IIIC compensation recovery rules, and the veteran subsequently applies and has the disability for which the compensation is paid accepted, the effect of the compensation payment under Part IIIC on the pension is adjusted. This may involve recalculating the lump sum preclusion period to account for the reduced compensation amount or adjusting the amount assessed as a periodic payment. Where a person receives a compensation payment and the offsetting of the Disability Compensation Payment or War Widow(er)'s Pension is less than the amount of compensation paid, then the excess of compensation paid is taken into account under Part IIIC.
Chapter 10 (Section 402) of the MRCA operates to preclude a person from any compensation (for both economic and non-economic loss) under the Act where a person receives compensation from another source. This is effectively a bar to compensation under the MRCA and will mean a person's entitlement or an injury or disease is nil, therefore the exclusionary provisions under the VEA do not deal with MRCA compensation payments, otherwise the economic loss portion of a third party compensation payment would not be appropriately considered in the assessment of a person's service pension, veteran payment or income support supplement.More →
Compensation recipient contributions
Part IIIC does not apply to a compensation payment if:
- the compensation recipient has made contributions towards the payment (for example by way of insurance premiums), and
- the agreement under which the contributions are made does not provide that the amounts that would otherwise be payable under the agreement are to be reduced or are not payable because the recipient is eligible for or receives the compensation affected pension (CAP), or
- the agreement does provide for the amounts to be reduced but the compensation has been calculated without reference to that provision of the agreement.
In determining whether the compensation recipient has made contributions towards the payment, it is not necessary that the compensation recipient makes the payment, for example insurance premiums, directly to the insurer. Where an employer-employee agreement (collectively or individually) provides, as part of an overall package of benefits, for the employer to make payments of income insurance or salary continuance premiums to the insurer on behalf of the employee, that can be accepted as representing a contribution by the employee.
Payments in respect of criminal injury
Part IIIC does not apply to compensation payments made for a personal injury or disease or condition suffered as a result of the commission of an offence.
Compensation paid on death
The compensation recovery provisions only apply to living persons, not estates. Compensation recovery notices can only be served on living persons, or insurers or compensation payers who are liable to pay people, not estates. Therefore while a recovery notice cannot be issued after death, a recovery notice issued prior to the death of the compensation recipient is valid.
In some jurisdictions, compensation payments are paid to the surviving spouse of a deceased worker by the workers' compensation authority (for example the Dust Diseases Board). If the compensation payment is made for non-economic loss, the payment should be assessed as ordinary income. That is, they are not assessed under Part IIIC. If they are made wholly or partly for economic loss the compensation recovery provisions apply.
Compensation paid under the Defence Act 1903
Payments of Severe Injury Adjustment (SIA) or Additional Death Benefit (ADB) under the Defence Act 1903 are excluded from the compensation recovery provisions, as they do not include payments which are wholly or partly in respect of lost earnings or lost capacity to earn.
Compensation as a result of Australian Defence Force Reserve activity
Compensation as a result of Australian Defence Force Reserve activity (other than compensation in respect of continuous full-time service) is exempt from the compensation recovery provisions. This is irrespective of whether or not the compensation recipient, or their partner, was in receipt of a CAP at the time of the compensable event. It is also exempt income for the purposes of the ordinary income test.
The available discretion to treat the whole or part of a compensation payment as not having made for the purposes of the compensation recovery provisions should be exercised, where compensation is paid in respect of ADF Reserve activity other than for continuous full-time service.
However, any compensation payments made in respect of an inability to attend the usual (civilian) workplace (including any such payments paid by the Defence Force) are not exempt and should be treated as compensation.
Assessment under income and assets tests
Any compensation payments that are not assessable under the recovery provisions will be assessed as ordinary income, unless specifically exempted under subsection 5H(8).
The asset value of any compensation payment received will be assessed under the assets test, unless it is an exempt asset under section 52, regardless of whether or not the compensation is subject to the recovery provisions. The actual assessment will vary depending on the form the compensation is received in and how it is used. To the extent that the compensation takes the form of an exempt asset or is used to purchase an exempt asset, the compensation is exempt from the assets test.