Editors --- "Lump sum compensation: preclusion period; special circumstances" [2007] SocSecRpr 45; (2007) 9(4) Social Security Reporter, Article 3

• SECRETARY TO THE DEWR and LANCASTER
• The issue
• Background
• The law
• Formal decision

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Lump sum compensation: preclusion period; special circumstances

SECRETARY TO THE DEWR and LANCASTER

( 2007/1864)

Decided: 17th October 2007 by B. Pascoe

The issue

In this matter the issue was what portion, if any, of a compensation payment received by Lancaster should be treated as not having been made, for social security purposes.

Background

Lancaster suffered a work-related injury in September 2000,and until November 2004 received weekly workers’ compensation payments. On 25October 2004 she received a lump sum payment of$400,000, and was advised by Centrelink that a preclusion period would be applied in respect of half of the lump sum (i.e. $200,000) and would run from October 2006 until 24 August 2010, later adjusted to run from November 2004until September 2010. The SSAT concluded that $300,000 of the lump sum should be disregarded for social security purposes, although it did not detail the basis on which it had calculated this disregarded amount.

Lancaster argued that she in fact received only $320,000 of the lump sum after paying $80,000 in legal costs. In 2006 she had separated from her husband, a drug user who was admitted twice to psychiatric care in 2006, and her son born in 2003 suffered from severe autism, required wheelchair use outside the home, and needed full-time care. Lancaster herself suffered from neck, arm, shoulder and leg nerve damage. In August 2006she provided Centrelink with a statement detailing a total of $246,024 of expenditures from the lump sum she had received, including the costs of purchase and modifications of a home for herself and her son, purchase of furniture, and payment of loans and credit card debts. By January 2007 she had none of the lump sum left, having expended the remainder largely on living expenses as her principal income sources were carer allowance and family tax benefits. Lancaster argued that, because of the needs of her son, it was impossible to either rent premises or to rent out any part of her home.

The law

It was not disputed that the payment received by Lancaster was ‘compensation’ as defined by s.17(2) of the Social Security Act 1991 (‘the Act’), nor that 50% of the lump sum was to be regarded as compensation. The question in dispute was whether any or all of the lump sum payment should be disregarded in calculating any preclusion period, to which issue s.1184K of the Act is relevant, and provides –

1184K. ...the Secretary may treat the whole or part of the compensation payment as:

(a) not having been made; or

(b) not liable to be made;

if the Secretary thinks it is appropriate to do so in the special circumstances of the case.

The Tribunal noted that, to be considered ‘special’, circumstances must be unusual, uncommon or exceptional. The Tribunal concluded that, given her personal incapacity and need for housing with special modifications, the needs of a severely autistic child and the impact of this on her ability to rent, and her financial position, Lancaster’s circumstances should be considered as ‘special’ and that accordingly some part of the lump sum payment should be treated as not having been made.

The Tribunal then considered what portion of the lump sum should be disregarded, and determined that the amount to be disregarded must be calculated by relating the expenditures to the circumstances found in the particular case. Applying this criterion, the Tribunal directed that the costs of purchasing and modifying her home($202,575), of furniture and appliances necessary for Lancaster to care for her son ($12,507), and 50% of the $80,000 legal costs she was required to meet, should together be disregarded. This meant that in total$255,082 of the lump sum was to be disregarded, and that the preclusion period should be re-calculated on this basis.

Formal decision

The Tribunal varied the decision to the extent that $255,082of the $400,000 compensation payment should be treated as not having been made, and the preclusion period re-calculated on this basis.

[P.A.S.]