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Lump sum payments may impact past and future eligibility for a Centrelink payment that is affected by compensation.
How we assess a compensation lump sum
A compensation lump sum is used to determine a preclusion period.
The client may receive a lump sum by consent agreement, where the settlement of the claim includes loss of earnings or loss of capacity to earn. We must treat 50% of the gross lump sum payment as the compensation for loss of earnings. We’ll then use this amount to calculate the preclusion period.
A court or tribunal may award compensation after a full and contested hearing. The specific amounts awarded for the loss of earnings or loss of capacity to earn are used to determine the compensation part of the lump sum.
A client must notify us of any lump sum compensation payments they have received, or will receive, either past or future. They need to tell us because it may affect their eligibility for a Centrelink payment.
Global, or ‘all in’, lump sum payments without a specific apportionment to lost earnings are still generally considered to be in respect of lost earnings, unless otherwise specified. We must treat 50% as being compensation.
Preclusion period
The expectation is that a client uses part of their compensation payment to support themselves for a period of time before any income support payments are made. This period is referred to as a lump sum preclusion period. We use information provided by the compensation payer to calculate if there will be a non-payment, or preclusion, period into the future.
During the preclusion period, the client’s partner may still be eligible to receive a Centrelink payment. Clients may be eligible for some payments that do not fall under the compensation provisions or a Health Care Card during their preclusion period.
Our Financial Information Service is free and confidential, and can give a clear understanding of compensation preclusion periods. We also provide information to help prevent people placing themselves in hardship.
To work out your client’s preclusion period and the potential impact on payments, you can use the Compensation Estimator.
When we recover a compensation charge
When a client receives a compensation lump sum and they’ve been in receipt of a Centrelink payment affected by compensation, we may recover the amount they received from us. This amount is referred to as the compensation charge. It’s usually recovered directly from the compensation payer.
We can recover the compensation charge from the lump sum before it’s paid to the client. We’ll do this if we’re advised that a client is claiming a compensation lump sum payment, and the compensation payer has been issued with a Preliminary Notice.
If we’ve not issued a compensation notice to the payer before the funds are released, the charge is recovered directly from the client.
Example of when we recover a compensation charge
Alex was injured in a motor vehicle accident on 1 May 2022. On 1 June 2022, Alex claimed an income support payment from Centrelink as they were unable to work. Alex also lodged a claim for compensation.
Alex’s claim for compensation was settled on 1 July 2023 for $400,000, and this lump sum included a component representing economic loss.
As required, we used 50% of the lump sum in our calculations. This resulted in Alex being precluded from income support payments for a period of 171 weeks from 1 May 2022 to 10 August 2025. A charge, or repayment, of payments from us made from 1 June 2022 to the date Alex’s payments were cancelled was also calculated. This amount was repaid to us directly from Alex’s compensation lump sum.
When we send a nil-charge advice
We may issue a nil-charge advice when we have no interest in respect to the compensation payment for which our approval is being sought.
However, if subsequent lump sum payments are made under the same claim number, the original decision will be reassessed.
A preclusion period may still apply into the future, depending on the amount of the lump sum compensation.
When we send garnishee notices
We may seek to recover funds from a third party for an overpayment that is not related to the compensation charge. This is known as a garnishee notice and is different from a charge notice.
We will attempt to contact a client to negotiate the repayment of any other overpayments before applying a garnishee.