Last amended: Effect of periodic compensation payments on a person's pension
Periodic compensation payments paid to a pensioner, who becomes entitled to receive a compensation affected pension (CAP) after the event that gave rise to the person's entitlement to compensation, are directly deducted on a dollar for dollar basis from the rate of CAP paid to the pensioner. This dollar for dollar deduction occurs after any existing reduction in payability arising out of the income/assets tests. It should be noted that Part IIIC rules only apply where the person who receives compensation has not yet reached pension age.
Periodic compensation payments treated as ordinary income
If a person receives periodic compensation payments and was in receipt of a CAP at the time of the event that gave rise to the person's entitlement to compensation, the Part IIIC compensation recovery provisions provide that the periodic compensation payments are to be treated as ordinary income, rather than as a direct deduction. For this concession to apply, the person must:
- be eligible for the compensation payment during the periodic payments period (including backdated eligibility), and
- be receiving a CAP payment at the time of the event.
Where a person receives a lump sum compensation payment based on arrears of periodic compensation payments, the income test applies as if the lump sum is not received, with the periodic payments on which the lump sum is based being assessed over the period in which the entitlement to those periodic payments arose. (Link to Rate Calculator SCH6-E4).
Effect of periodic compensation payments on partner receiving CAP
Section 59TA VEA
SCH6-E3A VEA
If a person's periodic compensation payments reduce their CAP to nil, and the person's partner is receiving a CAP, the excess amount (if any) by which the daily rate of periodic compensation payable to the person exceeds the daily maximum basic rate [glossary:(:]MBR[glossary:):] of the CAP, is treated as ordinary income of the person's partner. That is, the excess compensation amount is added to the partner's half of the couple's combined ordinary income for the purposes of the pension assessment under the income and assets test.
The Income and Assets Tests
In calculating the amount of excess compensation, if any, to be assessed as income when determining the partner's CAP, the excess compensation is deducted from the compensation recipient's notional MBR, even if they are otherwise receiving a reduced rate under the income/assets tests. (This assessment differs to that of the compensation recipient, where the compensation amount is deducted from the payable rate calculated after the application of the income/assets tests.) This different approach is because the compensation recovery rules provide that the compensation recipient's eligible rate of CAP is used for this calculation
Effect of periodic compensation payments on partner receiving payment other than a CAP
If a person's periodic compensation payments reduces their CAP to nil and the person's partner is receiving an income support pension other than a CAP, the excess amount (if any) by which the daily rate of periodic compensation payable to the person exceeds the MBR of the CAP, is treated as ordinary income of the couple. That is, the residual compensation is added to the couple's ordinary income and half of the total is included in the partner's pension assessment under the income and assets test.
The Income and Assets Tests
Compensation recipient not in receipt of a CAP
Where the compensation recipient is not in receipt of a CAP because of either of the following situations:
- recipient is over pension age and not in receipt of a pension, or
- where there is no basis on which a determination can be made about whether the compensation recipient is eligible for a compensation affected pension, or qualified for a compensation affected payment under the Social Security Act,
then the compensation payment can be regarded as ordinary income of the couple. This is because the daily rate of compensation affected pension cannot be determined, so the amount to be recovered under the compensation recovery provisions cannot be determined.
Where the recipient's partner has applied for a CAP, then half of the combined (partnered) rate or amount must be used throughout the assessment process. Therefore:
- half of the combined annual income from the compensation payment (and any other source) is assessable under the income test; and
- half of the combined rate or amount is used for all other pension calculations.
This means, for example, where calculating the rate of ISS (using the method described in 9.1.2) that is payable to the partner, the calculation must use:
- half of the partnered maximum basic rate to work out the person's maximum basic rate ;
- half of the annual rate of ordinary income for the couple to work out the reduction for income;
- half of the combined income free area when applying the income test; and
- half of the partnered ceiling rate.
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Assessment method for ISS
Deemed receipt date of periodic payments
Income support pension recipients are generally deemed to receive a periodic compensation payment from the date it becomes payable.
Repayment of amount where both periodic payments and pension have been received
When a person receives periodic payments of compensation (for example, weekly workers' compensation payments) for a period, and the person also received CAP payments for the same period, the person has to repay amounts equivalent to the lesser of the:
- sum of the periodic compensation payments, or
- difference between the pension paid to the person and the pension that would have been payable had it been reduced in respect of the compensation payment.
If the person is a member of a couple, the recoverable amount is equivalent to the lesser of the:
- sum of the periodic compensation payments, or
- the difference between the pension paid to the person and the person's partner, and the pension that would have been payable had the person and the person's partner's pensions been reduced in respect of the compensation payment.
Person granted CAP already qualified for SSA compensation affected payment
If prior to receiving a CAP from DVA, a person was receiving a social security compensation affected payment at a reduced rate (including nil rate), due to:
- a compensation lump sum, or
- periodic payments made to the person or the person's partner,
then their DVA CAP is also reduced or not paid for the period of time that was applicable under the Social Security Act 1991 (SSA).
Direct deduction applied to income or assets reduced rate
Direct deductions to a person's CAP for periodic compensation payments are made to the person's reduced rate of pension after the income and assets test has been applied.
Periodic compensation payments not treated as ordinary income
Periodic compensation payments that have reduced a person's CAP under the compensation recovery provisions are not assessed as ordinary income.
Periodic compensation payments and treatment eligibility
Periodic compensation payments that have reduced a person's CAP under the compensation recovery rules are not assessed as income, when determining the person's treatment eligibility under the income/assets reduction limit (IARL).
Where the periodic compensation payments reduce a person's CAP to nil, there is no treatment eligibility under the IARL rules (there may still be some other entitlement to treatment). It is necessary for a person to be receiving a rate of service pension for eligibility under the IARL provisions to apply.
Where periodic compensation payments are assessed as income (e.g. for a veteran receiving a non-CAP pension), the amounts are included as income for IARL purposes.