Compensation payments and Centrelink
08 Jan 2015
- Personal Injury
It is essential that you take into account Centrelink recovery before accepting any offers of settlement from an insurer.
When can Centrelink take funds from my compensation?
There are two situations in which Centrelink is entitled to recover funds from your compensation. Firstly, if your compensation includes an allowance for past and/or future loss of earnings or earning capacity, funds may be recovered. Centrelink is not only able to recover past payments, but they may also preclude you from future payments. Secondly, in circumstances where you have a debt with Centrelink, Centrelink will recover the balance of that debt/loan from your compensation payment.
This process occurs when the compensation claim is finalised. The insurance company is required to pay the recovery sum directly to Centrelink first and then sends the balance to you or your lawyer.
Is my Centrelink income payment type recoverable?
Most types of income maintenance are recoverable. Examples of recoverable payments include Parenting Allowance, Sickness Benefits, Disability Support Pension, and Newstart. The lump sum Family Tax Benefit payment is the only benefit that is not recoverable.
All Centrelink debts are recoverable, such as any outstanding loans or overpayments made.
Why is my compensation targeted?
Centrelink exists as a financial safety net for Australians in times of hardship. Situations of hardship can include periods of illness, unemployment, being older and unable to support yourself, and caring for young children or adults with disabilities. Where a person has been compensated by an insurer for their loss of income, it is considered ‘double-dipping’ to receive the income from both an insurer and Centrelink, therefore Centrelink may recover their earlier payments, or preclude you from a period of future payments.
How does Centrelink calculate the amount they take from my compensation payment?
If your compensation payment consists of arrears of income maintenance for a set period of time, Centrelink will recover all of the money they have paid you as income support during that set period of time. For example, if your compensation payment is back pay of workers compensation for a three month period and totals $10,000 gross, and Centrelink paid you $3,000 in income support during this three month period, they will recover that full mount from your $10,000 and you will be left with a balance of $7,000 gross.
If you are receiving a lump sum payment of compensation, the calculation is more complex. Centrelink will divide the total amount of compensation including legal costs and medical expenses and Medicare by two. They will then divide the 50% compensation figure by average weekly earnings (at the moment this is $920.80) The figure from that calculation is the number of weeks’ after your injury when any payments made by Centrelink will be recovered.
For example, if your compensation payment is a $100,000, the calculation would be as follows: 100,000 divided by two equals $50,000, divided by $920.80, equals 54 weeks.
In the above circumstance, Centrelink will then go back to the date of your injury and then recover from your compensation payment all income maintenance payments that they have made for the first 54 weeks following the accident. If 54 weeks have not elapsed since the accident, Centrelink will recover the full amount of payments made since the accident and you will have to wait (if you are still not working) until the 54 weeks expires before you are entitled to claim Centrelink benefits again.
You should remember that the average weekly earnings figure that Centrelink uses increases as that figure is adjusted by the Bureau of Statistics. Please note that Centrelink have a calculator on their website which you can use to calculate the amount that they will recover from your settlement. However, the amount will not be specific to your matter as Centrelink assume for the purposes of the calculation that the person is getting full Centrelink benefits for the entire period from the date of the accident. In summary, it is a worst case scenario in that it will tell you the maximum amount that Centrelink can recover from your settlement, but not the actual amount that they will recover.
After Centrelink recover money from my settlement, will I be entitled to Centrelink benefits?
Once Centrelink recover monies from your settlement, you will still be eligible for Centrelink benefits unless the number of weeks calculated using the above formula has not yet expired. When Centrelink becomes aware that someone has or is about to receive compensation, they will send out letters and forms asking the person to advise them of all the details of the compensation. They will ask questions about what you intend to do with the compensation. If you invest the compensation and earn interest or an annuity from the compensation, the funds will be classed as income and may affect your entitlement to Centrelink benefits depending on the amount that you are earning.
This information is of a general nature only and is subject to change. Specific advice needs to be obtained for your personal situation. Please contact our Personal Injury team for expert advice.