Editors --- "Income replacement insurance payments: whether 'compensation' or 'ordinary income" [2005] SocSecRpr 4; (2005) 7 Social Security Reporter, Article 4

• OPREA and SECRETARY TO THE DFaCS
• Background
• The issues
• The law
• Discussion
• Formal decision

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Income replacement insurance payments: whether 'compensation' or 'ordinary income

OPREA and SECRETARY TO THE DFaCS

(2005/678)

Decided: 15th July 2005 by S.D. Hotop

Background

In May 1995, Oprea commenced employment with the Resolute Group of Companies. In May 2000, she became incapacitated for work by reason of bipolar disorder. From 3 August 2000, Oprea commenced to receive monthly payments of $2,185.02 under an income protection insurance policy issued in the name of her employer.

Oprea’s remuneration package with Resolute Group included the income replacement insurance.

The issues

The AAT was satisfied that the payments made to Oprea under the policy were compensation payments unders.17(2)(d) of the Social Security Act 1991 (the Act), as they were payments made wholly in respect of lost earnings or lost capacity to earn. The AAT considered that the phrase “personal injury” in s.17(2)of the Act included not only physical injuries but also any bodily disease, ailment, disorder or impairment, whether physical or mental, suffered by a person.

The primary question before the AAT was whether Oprea had made any contributions to the insurance policy. If the AAT answered that question in the affirmative it would necessarily follow, by reason of s.17(2A) of the Act, that the payments made to Oprea, pursuant to the income replacement insurance policy, would not be treated as “compensation” for the purposes of the Act but rather would be treated as ordinary income. A decision had been made that the payments under the policy were to be treated as “compensation” for the purposes of the Act, in which case parenting payment was not payable, and Oprea’s claim for such payment had been rejected.

The law

Section 17 (2) defines “compensation”, but is subject to s.17(2A) which provides:

17(2A) Paragraph (2)(d)does not apply to a compensation payment if:

(a) the recipient has made contributions (for example, by way of insurance premiums)towards the payment; and

(b) either:

(i) the agreement under which the contributions are made does not provide for the amounts that would otherwise be payable under the agreement being reduced or not payable because the recipient is eligible for or receives payments under this Act that are compensation affected payments; or

(ii) the agreement does so provide but the compensation payment has been calculated without reference to the provision.

Discussion

The AAT received evidence from Oprea’s former employer that the insurance policy was regarded as a component of an employee’s salary package, but that if the employee elected not to have the income replacement insurance as a component of their salary package, their salary would have been adjusted upwards.

In the circumstances, the AAT considered that Oprea had made contributions toward the insurance policy. The AAT noted thats.17(2A)(a)did not require that such contributions had been made directly to the compensation payer by the recipient of the compensation payment.

The AAT considered that this case was distinguishable from Re Macri and Secretary, Department of Family and Community Services [2005] AATA 175, on the basis of the evidence the AAT had received that the insurance policy was a component of the applicant’s remunerative package.

Formal decision

The Tribunal set aside the decision and remitted the matter to the respondent for reconsideration in accordance with a direction that the payments received under the income protection insurance were to be treated as ordinary income for the purposes of the Act.

[S.O.]