Lump sum or periodic compensation and damages payments received will affect many social security payments. The type of social security payments that are affected in this way are called ‘compensation-affected payments’.
Compensation payments are treated differently under social security law. In section 17(2) of the SS Act, “compensation” is defined for social security purposes. For a payment to be “compensation” for social security purposes, the payment must include a component for economic loss. Centrelink examines settlements and decides whether this is the case. Otherwise, such payments are generally treated as ordinary income.
A person who receives compensation will have their “compensation-affected payment” affected (most major payments are compensation-affected), depending on whether they receive compensation in the form of a periodic payment, or as a lump sum settlement, or due to a court judgment.
A person who is receiving periodic payments of compensation for a loss of income will have their “compensation-affected payment” reduced by the amount of those payments on a dollar-for-dollar basis.
Where a person recovers compensation in a lump sum, the person is precluded from receiving a social security payment for a period that is directly related to the amount of compensation or damages.
The amount that Centrelink is entitled to recover in either of these ways depends on a formula set out in the SS Act. This is a complex area and any specific queries should be taken to the solicitor who is handling the damages or compensation claim.
Where a person has been receiving a compensation-affected payment and later recovers compensation covering the same period, the person is liable to repay the social security payments. Usually Centrelink will recover the social security money paid to a person from the employer or insurance company.
If Centrelink decides that there are special circumstances relating to the person receiving compensation, it can treat some or all of the compensation paid as not having been paid. This decreases the preclusion period or the amount to be repaid to Centrelink, or both.