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A compensation preclusion period test will be applied to applicants for social security benefits who have received/ will receive compensation for injuries etc that have forced them out of the workforce. The extent of the preclusion period is calculated according to publicised criteria that can be found on the Services Australia website. The preclusion applies to benefits paid by Centrelink or the DVA.

This waiting period will usually date from the time of the incident or from the cessation of regular compensation benefits.

It is most important that the terms of any preclusion period are established before any compensation funds are committed: this  is because a preclusion period will be applied even if all the funds have been used to purchase an asset, for example, a house, and as a result there is no financial means of support.

Once the settlement of a claim has occurred or is about to happen, an ‘Estimate of Charge/Preclusion’ can be requested from the relevant compensation section of Centrelink to obtain an estimate of the likely compensation preclusion period – and amounts repayable to Centrelink.

What is the definition of compensation?

Compensation includes:

  • A payment of damages,
  • A payment made under a scheme of insurance or compensation under a Commonwealth, State or Territory law, including a payment under a contract entered into under such a scheme,
  • A payment (with or without admission of liability) in settlement of a claim for damages or a claim under such an insurance scheme,
  • Any other compensation or damages payment, or
  • A payment under a sickness or accident policy where the payment is reduced (offset) because the claimant has received or may be entitled to receive social security payments from Centrelink.

If a lump sum payment settled by consent agreement has any component for loss of earnings (even a minor component), then the entire amount will be used in the steps set out below to calculate the lump sum preclusion period.

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How is the compensation preclusion period calculated?

Compensation Part

The first step in the process is to assess the ‘compensation part’.

Sometimes, though not usually, a court will specify how the components of the compensation lump sum payment are made up. The compensation part will be the part which is compensation for loss of income.

In cases, which are settled by agreement or where the court does not make a distinction between components, the compensation part is taken to be 50 per cent of the settlement figure.

Duration of the Preclusion Period

The number of weeks in the lump sum preclusion period is calculated by dividing the compensation part of the lump sum by the divisor and rounding down the result to a whole number of weeks.

The divisor used to calculate the lump sum preclusion period is the Single Pension income cut-off limit – that is, the amount of income which just precludes a single person from receiving a pension under the income test.

Start Date of the Preclusion Period

If you have been in receipt of weekly compensation payments the preclusion period will commence the day after those weekly compensation payments cease.

If you have not received weekly compensation payments, the preclusion period will start on the day the loss of earnings or lost capacity to earn began – frequently this will be the date of the accident.

Note: If the preclusion period is back-dated to the time of the accident, then any Centrelink income support payments that you have received since then will be repayable. You will not be able to receive an income support payment from Centrelink until the preclusion period is exhausted.

You may still be able to obtain a range of supplementary assistance during a preclusion period including Health Cards, Carer Allowance, Mobility Allowance and Disaster Relief Payment.

Your partner may claim any income support payment to which they may be qualified and will not be affected by your preclusion period. Their payment will be calculated by taking into account your combined income and assets. Assets will include the lump sum payment unless it is invested in an exempt asset. You or your partner may also be able to apply and qualify for Family Tax Benefit.

Given the complex nature of calculating preclusion periods for lump sum compensation payments, please contact Centrelink for more information.

1 Reviewed and confirmed current as at April 2021.

We acknowledge the resources of Securitor Financial Group Limited in drafting the majority of the detail in the above article: it was originally extracted from the Support Information to advice document templates provided by them. This article was originally published in January 2010; it has occasionally been updated/ refreshed, most recently in April 2021.