Throughout the life of an incapacity claim the rate of payment will be subject to change and will cease when certain conditions are met. Cessation of payment may be as a result of the person no longer having an entitlement or remaining entitled to payment but with no compensation payable.
SRCA Section 22 [1] of the SRCA and section 127 [2] of the MRCA provides that where:
A person is receiving incapacity payments; and
As a result of their service injury or disease is being maintained in a hospital, nursing home or similar place/institution; and
Has been a patient of that institution for a continuous period of at least one year; and
Has no dependants;
their incapacity payments may be reduced. The amount of payment must remain at least at one-half of what the person is otherwise entitled to receive. The person's future needs and expenses and the length of time they are likely to be maintained in a hospital or similar must be considered before reducing payments.
The amount of compensation will not be reduced where the person has any dependants, dependent young persons or has a dependent young person in the care of another person.
A person’s right to compensation can be suspended under sections 57(2) [3] if the person refuses or fails to undergo an examination without reasonable excuse. Under Section 37(7) [4] of DRCA, a person's right to compensation may also be suspended where they fail or refuse to undertake a rehabilitation program, without reasonable excuse. Medical treatment is excepted from the suspension.
Chapter 12 of the Liability handbook discusses S57(2) suspensions primarily in relation to liability issues although the medical examination could be for any purpose i.e. incapacity payments. Refusal or failure to attend an examination results in suspension of all compensation under that claim which was to be tested by the medical exam. The suspension is not appealable and is only lifted once the person complies with direction and attends an appointment.
Note however, that a S57(2) suspension (unlike S37(7) which relates to non-compliance with a rehabilitation plan) relates only to compensation specific to the condition which was the subject of the medical examination. If a client suspended under S57(2) for one injury subsequently becomes incapacitated by a separate injury (that wasn’t going to be investigated by the original medical examination) weekly payments may still be made (i.e. on the basis of that second injury).
Section 37(7) relates to a failure to undergo rehabilitation, which seeks to ameliorate the effects of any and all injuries. Once a suspension is in place weekly payments may not be made in respect to any weekly payments, no matter what injury caused that incapacity. For example, if a suspension was in place in respect of non-compliance with a rehabilitation program originally devised to deal with the effects of an injury, and subsequently the client also became incapacitated due to the progression of another injury, there would be no return to weekly payments. A suspension under S37(7) continues to apply until the client complies with the approved plan, and independently of which, how many, or in what sequence the client's compensable injuries caused incapacity.
Any decisions to suspend under both Ss36(4) and 37 are determinations under the Act thus allowing the client to seek a reconsideration of the delegate's decision. A decision to suspend based on non-compliance with a rehabilitation assessment or program should be made by a rehabilitation delegate.
Section 58 [5] has a slightly different provision that enables the delegate to refuse to deal with a claim for liability or compensation, where the person fails to comply with a written request for specified information or documents. This may include medical certificates, medical records held by Centrelink, taxation returns and pay slips. To apply subsection 58(3) [6] we must first issue a notice requesting provision of the information within 28 days as per subsection 58(1) [6].
A person's right to compensation can be suspended under section 50 [7] and 329 [8] of MRCA if they fail or refuse, without reasonable excuse, to undergo an examination or assessment. Under Section 52 [9] of MRCA, a person's right to compensation may also be suspended where they fail or refuse to undertake a rehabilitation program, without reasonable excuse.
Non-compliance under MRCA can lead to suspension of compensation entitlements (with the exception of compensation for medical treatment). In such cases it will be necessary to cease incapacity benefits for the duration of the suspension.
Any decisions to suspend under Section 50 or 52 are determinations under the Rehabilitation provisions and will be determined by a Rehabilitation delegate.
It is important to note, MRCA Section 345 states a determination under Section 50 or 52 is not an 'original determination' and therefore does not provide appeal rights.
Subsection 330(3) [10] has a slightly different provision that enables the delegate to refuse to deal with a claim for liability or compensation, where the person fails to comply with a written request for specified information or documents. This may include medical certificates, medical records held by Centrelink, taxation returns and pay slips. To apply subsection 330(3) [6] we must first issue a notice requesting provision of the information within 28 days as per subsection 330(2) [6].
If and when the suspension is terminated by the client's eventual compliance, compensation becomes payable only from the date of that compliance. No back-payment can be made in respect of the suspension period. The suspension has actually annulled any entitlement for that period when it was in force.
If a person's benefits have been suspended because they failed to attend a rehabilitation assessment or other appointments, then they must attend that appointment before benefits can be reinstated. On the day the person attends the appointment, benefits should be reinstated. If the person and or the rehabilitation provider are unable to reschedule the appointment for several days, then the suspension remains in place until the appointment takes place.
Section 23(2) [11] of the DRCA and Section 122 [12] of the MRCA [13]states the Commonwealth is not liable to pay compensation for a week to a person who is incapacitated for work if the person is imprisoned for the week in connection with his or her conviction of an offence.
MRCA only - Section 208 [14] of the MRCA also states that the Commonwealth is not liable to pay Special Rate Disability Pension (SRDP) for any period during which the person is imprisoned in connection with an offence. Sections 122 and 208 apply to former members only.
Section 23(2) of the DRCA, and section 122 of the MRCA are triggered only if the person is:
convicted,
imprisoned in connection with that conviction.
It should be noted that only weekly incapacity payments (or SRDP payments under the MRCA) are affected. The person continues to be entitled to claim other compensation benefits that may be appropriate.
Compensation under section 31 [15] of the DRCA or section 139 [16] of the MRCA (incapacity payments after a redemption/conversion of weekly amounts to a lump sum) is also affected as the rate payable under that section is derived from the amount of incapacity payment.
DRCA only - the exclusion applies only to 'current' employees. Payments to former employees under Ss131 – 136 in Part X are unaffected by imprisonment.
Situations where a person is imprisoned include:
in custody in a correctional centre (adult prison) of any grading, including a prison farm;
detention in a juvenile detention centre;
admission to a prison hospital; or
admission to a public hospital after transfer from prison under guard because of a medical emergency.
The following situations do not constitute imprisonment for the purposes of section 23(2), or section 122:
community service orders;
detention in a remand centre or police cells;
home detention (e.g. under the Home Detention Act 1996 (NSW)); or
Court-ordered residence in an alcohol and drug rehabilitation centre.
Periodic detention programs may involve incarceration of the offender for only part of the week, usually Friday evening to Sunday evening. At other times the offender lives at home and attends work, without supervision but possibly with some Court-imposed conditions.
As a matter of policy, periodic detention will not be regarded as ‘imprisonment’ for the purposes of section 122 or section 208. Although the section could be seen as authorising a partial reduction in compensation each week (equating to the ‘period’ of imprisonment), this is not desirable as the person continues to face almost the full financial costs of living (e.g. rent, support of dependants, bills, loan repayments, etc.).
Work release programs are operated by most State Corrective Services Departments. They usually involve release of a prisoner during the day to undertake employment or training activities. In some cases, the prisoner may live, with some supervision, in a half-way house run by the Department or a non-Government agency.
Cases involving work release programs must be decided on their particular facts, including consideration of
the nature of the accommodation;
the level of supervision;
the degree of self-responsibility accorded the person; and
financial responsibilities of the person for their board and lodging.
While an offender may be ‘imprisoned’, this imprisonment is not always ‘in connection with conviction of an offence’. Where there is no conviction of an offence, compensation entitlements are unaffected.
Examples where compensation is NOT affected include:
on remand awaiting trial;
detention in police custody after arrest;
detention in police custody for the person’s own protection (drunkenness, psychiatric disorder); or
detention in an Immigration Detention Centre.
‘In connection with’, although clearly not requiring a causal relationship, does require some real relevance of the conviction to the detention, there must be more than just a temporal coincidence.
Documentary evidence should be obtained from the relevant authorities to confirm:
the fact of conviction;
the date of conviction;
the sentence, and
the earliest date of parole.
The date of effect of any cessation of benefits is the date of imprisonment as imposed by the Court. Payments are only ceased from this date which, if retrospective, will give rise to an overpayment.
If a person is in prison on remand while awaiting trial, subsection 23(2) of the DRCA or section 122 of the MRCA should not be applied because the imprisonment at that stage is not ‘in connection with his or her conviction of an offence’.
The period of imprisonment that is 'in connection with his or her conviction of an offence' begins on the date that the court orders the sentence commences.
The conviction must be in respect of the same offence for which the person was held on remand. While it is not necessary for convictions to be recorded in respect of all charges, at least one charge must result in a conviction.
Scenario
A person has been imprisoned on remand for the period 1 January 2005 to 1 January 2010, pending trial, and was convicted of the offence on 2 January 2010.
Example 1 Backdating a sentence
The court imposed a sentence of 25 years, commencing on 1 January 2005 (i.e. a backdated sentence). DRCA S23(2) or MRCA S122 is applied retrospectively from the date the sentence commenced and results in overpayment of incapacity payments from 1 January 2005.
Example 2 Sentence for time already served
The court ordered that the sentence was to be for 5 years from date of imprisonment on remand (1 January 2005), and that the person was to be released immediately (having served the sentence). DRCA S23(2) or MRCA S122 is applied retrospectively and results in overpayment of incapacity payments for the period 1 January 2005 to 1 January 2010.
Example 3 Sentence commenced from the date of conviction
The court ordered the sentence was 5 years commencing on 2 January 2010. The period on remand (from 1 January 2005) is not an imprisonment in connection with the person's conviction. DRCA S23(2) or MRCA S122 is applied from the date the court ordered the sentence ocmmenced (2 January 2010) and should not be applied retrospectively for the period of remand (1 January 2005 to 1 January 2010).
Example 4 No sentence imposed
The court did not impose any term of imprisonment as part of the person's sentence. The period of time the person was held on remand is not an imprisonment in connection with his conviction, and DRCA S23(2) or MRCA S122 should not be applied restrospectively.
Where a person is detained in a closed psychiatric institution, careful investigation of the situation is required. In most cases, it is likely that subsection 23(2) of the SRCA and section 122 of MRCA will not apply for one of several reasons:
the person is not ‘imprisoned’, as the institution is a hospital not a correctional centre;
the person was not convicted of an offence because he or she was found to be unfit to plead to the offence; or
the person’s detention in the psychiatric institution is a result of a medical condition and has no ‘connection’ with offences for which they had previously been convicted and imprisoned.
Where a person is imprisoned on remand and this fact is known, the person should be advised that subsection 23(2) of the SRCA or section 122 of the MRCA (as the case may be) may apply if they are convicted of an offence. Such notification may assist a person to rearrange his/her financial affairs and thus limit the impact of any possible overpayment of compensation arising from a subsequent conviction.
When compensation is cancelled because of the operation of section 23(2) of the SRCA or section 122 of the MRCA, it is important to write to the person attaching a copy of the relevant determination and advising them that:
entitlement to compensation benefits may be restored upon release from imprisonment if liability to pay compensation for incapacity for work still exists; and
other compensation entitlements (e.g. permanent impairment etc.) continue during the period of imprisonment.
Section 23(1) of the DRCA provides that weekly incapacity compensation is not payable under section 19, 20, 21, 21A or 22 to a person who has reached age pension age. Section 120 [17] of the MRCA provides that weekly incapacity compensation is not payable under section 118 [18] to a person who has reached age pension age.* However other forms of compensation (e.g. medical expenses, permanent impairment, household care) still continue to be payable.
Former employees under the DRCA may continue to receive incapacity compensation after age pension age, at a reduced rate calculated under S134 [19].
Incapacity payments may continue past age pension age where the person was injured after reaching an age that is that is 2 years before age pension age. In these circumstances, S23(1A) [11] of the DRCA and section 121 [20] of the MRCA provides that incapacity compensation may be paid for a maximum of 104 weeks (whether consecutive or not) after injury.
*Note: Under the MRCA, incapacity payments may continue past age pension age where the person remains a member of the ADF, including serving and inactive/standby Reserve members. This is becasue the age pension age provision of MRCA (s121) applies to a person who is paid under section 118 'Compensation for incapacitated former members.' There is no provision to cease payment based on age for a serving member of the ADF.
Small amounts of incapacity payments may be converted to a lump sum payment. This is referred to as a ‘redemption’ under the DRCA and may be referred to as a redemption or commutation under the MRCA (though those terms are not referenced in the legislation). Redemption of payments is a practical alternative to continuing to make long term payments, where a person's incapacity status is stable and unlikely to change. This reduces the cost to the Commonwealth of administering small weekly payments, and provides clients with the benefits of receiving incapacity payments early, and as a lump sum.
A redemption is a lump sum payment made in lieu of future weekly compensation payments. It does not affect liability to pay any other compensation under the same Act.
The redemption eligibility ceiling amount (DRCA) or incapacity commutation limit (MRCA) is adjusted annually with effect from 1 July. The rates are published in CLIK [21].
Redemptions are only available after the first 45 weeks of incapacity.
Any weekly compensation benefits for 'partial' incapacity for duty which might be payable to serving members (for example, for loss of salary caused by a medically necessitated redeployment) are NOT to be redeemed since the member’s level of incapacity for duty can be considered to be likely to change in the future.
The delegation for Section 30 [22] and 137 [23] (DRCA) and section 138 [24] (MRCA) is at the APS6 level.
Sections 30 and 137 allow for a determination to be made redeeming further weekly incapacity payments by way of a lump sum.
Subsection 30(1) of the DRCA requires that a determination shall be made redeeming further weekly payments by the payment of a lump sum, where:
there is liability to make weekly compensation payments under Section 19, 20, 21 or 21A; and
if the person's degree of incapacity is unlikely to change i.e. will not deteriorate or improve.
Subsection 137(1) of the DRCA requires that a determination must, on written request by a 'former employee', be made redeeming further weekly payments by the payment of a lump sum, where there is liability to make weekly payments if the Delegate is satisfied that the employee's degree of incapacity for work is unlikely to change (i.e. will not deteriorate or improve).
A lump sum payment under Section 30 is mandatory (although it is strongly recommended that Section 30 redemptions be paid only after prior consultation with the person) once the criteria of Section 30 (1)(a), (b) and (c) are met. Usually an informal offer would be made to the person before a determination is made. A lump sum payment under Section 137 is made once the criteria of Section 137 (1) (a), (b) and (c) are met AND after a written request for the redemption is made by the former employee.
Subsection 138 (1)(d) requires that a person advises the Commission that he or she wishes to receive a lump sum redemption rather than incapacity payments. If the delegate is satisfied that the employee's degree of incapacity is unlikely to change (that is will not deteriorate or improve) and the person:
is engaged in work; or
is receiving a pension under a Commonwealth superannuation scheme; or
has received a lump sum under a Commonwealth superannuation scheme;
then future incapacity payments may be redeemed.
Lump sum redemptions are only made with the person’s written consent.
Delegates should investigate the possibility of a redemption/commutation where the incapacity payments fall below the prescribed rate.
In assessing whether the employee has an entitlement to a lump sum, delegates should consider the following issues:
whether the degree of incapacity is likely to increase, potentially reducing the amount the person is able to earn and resulting in the person’s weekly compensation benefits increasing to more than the prescribed redemption ceiling;
whether the degree of incapacity is likely to decrease, potentially increasing the amount the person may be able to earn and resulting in a reduction or cessation of the weekly compensation benefit;
the length of time which the employee has been receiving the same level of weekly payments. This could provide an indication as to whether the degree of incapacity is relatively stable. A period of stability of less than 6 months would generally indicate that a redemption would not be appropriate;
any historical record of intermittent periods of incapacity, suggesting that the level of incapacity may change;
an assessment of the goals (or proposed outcomes) of any rehabilitation plan the person may be undertaking, particularly whether any potential change in level of incapacity is likely once the rehabilitation program is completed;
whether a referral for rehabilitation is appropriate to determine whether the person is capable of undertaking a rehabilitation program with the aim of reducing the level of incapacity and subsequent effect on the employee’s ability to earn;
contemporary medical evidence on whether the level of incapacity is likely to change;
if the period of incapacity is within the first 45 weeks then no redemption should be calculated because the level of incapacity is likely to change; and
if the person is still serving, then no lump sum is payable as redemption is only applicable to discharged members.
DRCA only – Investigation includes advising 'former employees' if they have a Section 137 entitlement and advising them of their right to request the payment of the redemption lump sum. 'Former employees' should also be advised that payment of a lump sum may affect any entitlement they may have to the benefits which are available from Centrelink. They should be advised to seek information from Centrelink or Income Support before requesting a lump sum redemption under Section 137.
The calculation of the redemption amount payable is not made by multiplying the number of weeks left until pension age by the weekly amount of the incapacity payment. The amount of any lump sum is calculated in accordance with the formula contained in the relevant legislation. ‘n’ is the number of years (including fractions) between the date the delegate was advised of the person’s decision and the date on which the person reaches age pension age, or, if over 63, the date at which the person is no longer entitled to receive incapacity payments. The weekly amount is the amount payable to the person under s118 for the week in which they advise the Commission of their choice under s138(1)(d). The Specified number is a number specified by the MRCC (0.03).
This has the effect of calculating a redemption amount payable that is substantially less than what would have been payable to the person if they had continued to receive payments until pension age.
Payment of a lump sum under section 30 or Section 137 of the DRCA or section 138 of the MRCA does not affect any entitlements (other than for incapacity for work) which the injured person may have under the same Act.
DRCA – Section 31 allows for the resumption of weekly incapacity benefits, where at any time after a lump sum redemption is paid under Section 30, the injury results in the employee's becoming incapacitated for work to the extent that the employee is not able to engage in suitable employment, and the incapacity is likely to continue indefinitely i.e. is permanent.
The person does not need to be totally incapacitated to resume payments.
In such circumstances, there is liability to pay compensation for the period of incapacity at the rate that would have been payable under Section 19, 20, 21 or 21A less the amount per week that was redeemed at the date of the determination. Delegates should note that:
weekly payments which are recommenced under Section 31 cannot be redeemed.
a 'former employee' whose weekly incapacity benefits are redeemed under Section 137 cannot be entitled to a resumption of weekly incapacity benefits in the event of a worsening of the degree of his/her incapacity for work
a client who received in effect a redemption under the 1930 or 1971 Acts, who is not a 'former employee' can resume payments under the terms of S31 (S125(2) refers).
MRCA - Section 139 allows for the resumption of weekly incapacity benefits, where at any time after a lump sum redemption is paid, the condition results in the person becoming incapacitated for work to the extent that they are no longer able to engage in work or the person stops receiving the pension under the Commonwealth superannuation scheme and the incapacity is likely to continue indefinitely.
The person does not need to be totally incapacitated to resume payments.
In such circumstances, there is liability to pay compensation for the period of incapacity at the rate that would have been payable under section 118 less the amount per week that was previously redeemed.
Weekly payments which are recommenced under section 139 cannot be later redeemed.
Payment of a lump sum redemption is in effect the 'bringing forward' of the payment of weekly compensation as income replacement. The advice from the Australian Taxation Office (ATO) regarding Sections 30 and 137 (please see the exceptions 21 below) of the DRCA and section 137 of the MRCA is that a lump sum received in substitution of weekly payments does not alter the character of the compensation for 'income replacement' and that such payments are subject to taxation in accordance with the Income Tax Assessment Act 1936.
DRCA only - Advice from the ATO (following a decision in an AAT case (Coward and Commissioner of Taxation No ST97/87 [25])) is that a redemption made under Section 137 in respect of the portion of incapacity beyond age 65 will be characterised as a 'capital receipt' and will therefore not be subject to either income or capital gains tax. In other words, that part of a lump sum redemption which relates to incapacity for work after the injured employee turns 65 cannot be considered to be 'income replacement' and is not therefore considered to be taxable.
In cases where a 'former employee' is under 65 years old at the time a Section 137 lump sum redemption is to be paid, it will be necessary to identify that part of the redemption which is taxable (for incapacity before the employee is to turn 65) and the portion which will not be taxable (after the employee is to turn 65).
The appropriate rate of tax to be deducted is determined by:
dividing the lump sum amount, after deducting any amount as advised by Centrelink, by 52 to get a figure representing the weekly amount of income to be converted; then
the person’s marginal rate of tax applicable to this amount is multiplied by 52 to give the final amount of tax applicable to the lump sum.
This method accords with the principle that the employee is assessed on his or her total income in the year of receipt.
A redemption or commutation is based on the Reservist’s total incapacity payment amount (taxable and non-taxable components) and cannot be paid for only one aspect of the payment. A person cannot receive a redemption or conversion without considering the likelihood of a change to the level of incapacity in both the employee's Reserve and civilian employment. The portion of the lump-sum attributable to loss of Reserve earnings is non-taxable.
Links
[1] https://www.legislation.gov.au/Details/C2017C00237/Html/Text#_Toc488134646
[2] https://www.legislation.gov.au/Details/C2017C00214/Html/Text#_Toc487202433
[3] https://www.legislation.gov.au/Details/C2017C00237/Html/Text#_Toc488134714
[4] https://www.legislation.gov.au/Details/C2017C00237/Html/Text#_Toc488134687
[5] https://www.legislation.gov.au/Details/C2017C00237/Html/Text#_Toc488134715
[6] https://clik.dva.gov.au/service-eligibility-assistant-updates/all-determinations-order-date-signed-oldest-most-recent/determinations-under-mrca
[7] https://www.legislation.gov.au/Details/C2017C00214/Html/Text#_Toc487202314
[8] https://www.legislation.gov.au/Details/C2017C00214/Html/Text#_Toc487202715
[9] https://www.legislation.gov.au/Details/C2017C00214/Html/Text#_Toc487202317
[10] https://www.legislation.gov.au/Details/C2017C00214/Html/Text#_Toc487202717
[11] https://www.legislation.gov.au/Details/C2017C00237/Html/Text#_Toc488134647
[12] https://www.legislation.gov.au/Details/C2017C00214/Html/Text#_Toc487202424
[13] http://www.comlaw.gov.au/Series/C2004A01285
[14] https://www.legislation.gov.au/Details/C2017C00214/Html/Text#_Toc487202548
[15] https://www.legislation.gov.au/Details/C2017C00237/Html/Text#_Toc488134660
[16] https://www.legislation.gov.au/Details/C2017C00214/Html/Text#_Toc487202448
[17] https://www.legislation.gov.au/Details/C2017C00214/Html/Text#_Toc487202422
[18] https://www.legislation.gov.au/Details/C2017C00214/Html/Text#_Toc487202420
[19] https://www.legislation.gov.au/Details/C2017C00214/Html/Text#_Toc487202442
[20] https://www.legislation.gov.au/Details/C2017C00214/Html/Text#_Toc487202423
[21] https://clik.dva.gov.au/compensation-and-support-reference-library/payment-rates
[22] https://www.legislation.gov.au/Details/C2017C00237/Html/Text#_Toc488134659
[23] https://www.legislation.gov.au/Details/C2017C00237/Html/Text#_Toc488134890
[24] https://www.legislation.gov.au/Details/C2017C00214/Html/Text#_Toc487202447
[25] http://www.austlii.edu.au/au/cases/cth/AATA/1999/132.html