C10/2002 COMPENSATION RECOVERY - CALCULATION OF LUMP SUM PRECLUSION PERIOD UNDER SECTION 59Q

Purpose of Instruction

The method of calculating the preclusion period for payment of benefits, following a beneficiary's receipt of compensation payments which include a lump sum component, is set out in section 59Q of the VEA.

This Departmental Instruction is to advise that the method of calculation presently set out in sub-section 59Q(8) contains an error which, if applied, will result in an incorrect calculation of the preclusion period.

The correct calculation method

The correct formula for determining the preclusion period (where compensation is received on or after 20 March 1997) is set out in

sub-section 59Q(7)(b), as follows –

52   x   Compensation part of lump sum

     OIFA   +   2.5 (MBR  +  RPA)

This formula contains the correct benefit multiplier of 2.5, which was introduced effective from 1 July 2000.  The multiplier factor was changed from 2 to 2.5 at this time to ensure that the calculation reflects the 40 cents in the dollar taper rate for benefits, reduced from the previous 50 cents in the dollar taper rate, introduced as part of the GST compensation package.

The incorrect calculation method

Sub-section 59Q(8) provides for the rounding-down, to the nearest whole number, of the result obtained from using the formula in sub-section 59Q(7)(b).

The explanatory note which follows sub-section 59Q(8) provides a working example of how the preclusion period is to be calculated, including the rounding down of the end result.  However, this formula refers to, and uses, an incorrect multiplier of 2.  This explanatory note was inadvertently not amended at the time that the revised multiplier factor of 2.5 was included in

sub-section 59Q(7)(b).

Action needed

Staff involved in determining benefit preclusion periods should apply the correct formula, as set out in sub-section 59Q(7)(b), which includes the valid multiplier of 2.5.  The formula in sub-section 59Q(8) should not be used.

The necessary amendment to sub-section 59Q(8) will be included in a future minor/technical amendment to the VEA.

Contact officer

The Income Support Branch contact officer is:

Brian Butler       Telephone  (02) 6289 6564