Editors --- "Disability support pension: whether lump sum payments received are 'compensation' or 'ordinary income'" [2014] SocSecRpr 5; (2014) 16(1) Social Security Reporter, Article 5

• TRELOAR and SECRETARY to the DSS
• Background
• The issues
• The law
• Consideration
• Formal decision

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Disability support pension: whether lump sum payments received are 'compensation' or 'ordinary income'

TRELOAR and SECRETARY to the DSS

(2013/916)

Decided: 19th December 2013 by K. Bean

Background

Treloar’s disability support pension (DSP) was cancelled on 23 August 2011 following receipt of two lump sum payments from the Super SA Income Protection Scheme. The first payment of $15,930.86 was received on 22 December 2010 and the second payment of $37,313 on 22 August 2011.

Centrelink treated the payments as ordinary income apportioned over a 12 month period from the date of receipt of each of the payments. The result was that when Treloar’s deemed fortnightly income was calculated having regard to the apportioned fortnightly amounts derived from both the first and second lump sum payments, his income exceeded the limit for DSP and for this reason the payment was cancelled.

The issues

1. What was the correct characterisation of the lump sum payments received by Treloar, and in particular, were they correctly regarded as ‘ordinary income’ or ‘compensation’ within the meaning of the Social Security Act 1991 (the Act)?; and

2. Was Treloar’s DSP correctly cancelled from 23 August 2011?

The law

Section 1072 of the Act provides for the general meaning of the phrase ‘ordinary income’ as follows:

General meaning of ordinary income

A reference in this Act to a person’s ordinary income for a period is a reference to the person’s gross ordinary income from all sources for the period calculated without any reduction, other than a reduction under Division 1A.

Section 1073 provides that certain lump sum amounts are taken to have been received over 12 months.

Subsection 17(2) provides for the meaning of the term ‘compensation’ for the purposes of the Act as follows:

Subject to subsection (2B), for the purposes of this ACT, compensation means:

(a) a payment of damages; or

(b) a payment under a scheme of insur-ance or compensation under a Com-monwealth, State or Territory law, in-cluding a payment under a contract entered into under such a scheme; or

(c) a payment (with or without admission of liability) in settlement of a claim for damages or a claim under such an insurance scheme; or

(d) any other compensation or damages payment;

(whether the payment is in the form of a lump sum or in the form of a series of period-ic payments and whether it is made within or outside Australia) that is made wholly or partly in respect of lost earnings or lost capa-city to earn resulting from personal injury.

.... Subsection 17(2A) also relevantly provides as follows:

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 un-der this Act that are compens-ation affected payments; or

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

Consideration

The Tribunal determined that, as the lump sums were paid pursuant to a con-tract or arrangement entered into under a State law and that the payments were made in respect of lost earnings ‘resulting from personal injury’, they must there-fore be regarded as compensation with-in the meaning of s.17(2)(b) of the Act.

The Department had submitted that it would be an ‘unsatisfactory interpretation of the Act’ for the payments to be re-garded as ‘compensation’ under s.17(2) (b) when they might be excluded from the operation of s.17(2)(d) for example, because Treloar had made contributions to the payments. The Tribunal rejected this submission, concluding that even if Treloar had made contributions towards the payments for the purposes of s.17(2A) it did not prevent the payments from be-ing ‘compensation’ within the meaning of s.17(2)(b). The Tribunal found that the payments squarely fell within the description contained in s.17(2)(b) and that it did not appear to be the intention of the Act that a payment which was expressly excluded from s.17(2)(d) by s.17(2A) was also excluded from s.17(2) (b).

The Tribunal further noted that its conclusion was consistent with the policy reflected in the Department’s Guide to the Social Security Law, in so far as it provides that: Periodic and/or lump sum payments made under an income protection or sickness and accident policy..... ARE compensation for the purposes of the SSAct if they are made in respect of lost earnings or lost capacity to earn. The Tribunal decided that it was not in a position to determine whether Treloar’s DSP should have been suspended rather than cancelled as it was first necessary for the Department to recalculate Treloar’s entitlement to DSP based on the lump sum payments being assessed as compensation.

Formal decision

The decision under review was set aside and in substitution for that decision it was decided that:

(a) the lump sum payments received by Treloar on 22 December 2010 and 22 August 2011 were to be treated as ‘compensation’ for the purposes of the Act; and

(b) the matter was remitted to the Department for redetermination and recalculation of Treloar’s entitlements accordingly.

[G.B.]