Injured People

Centrelink and compensation payments

Mal Byrne writes about how your injury compensation will affect your Centrelink payments. 

Centrelink exists to provide a financial safety net for people in times of hardship such as unemployment, illness, disability, or when a person cannot look for work because they have to stay at home and care for preschool children or a disabled adult.  When the hardship is caused by injuries from an accident and the injured party is entitled to a compensation payment, Centrelink has a right to recover some of the money that they have paid as income support since the accident from the injured party’s final compensation payment.  When the compensation claim is finalised the insurance company has to pay the recovery sum directly to Centelink first and then sends the balance to the injured party or their lawyer.

When will Centrelink be entitled to recover money?

There are two circumstances in which Centrelink is entitled to recover money from an injured party’s compensation.

1.             If your compensation payment is arrears of wages or if you are receiving a lump sum payment of compensation, but there is an allowance in that lump sum for past and/or future loss of income.

2.             If you have a debt to Centrelink such as an outstanding loan that you are repaying or an overpayment, Centrelink will recover the balance of that debt/loan from your compensation payment.

How does Centrelink calculate the amount that they will 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 WorkCover 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 $823.80).  The answer that arises from that calculation will be the number of weeks’ payments that Centrelink will recover.

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 $823.80, equals 60.69 weeks.

In that 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 61 weeks following the accident.  If 61 weeks has 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 61 weeks expires before you are entitled to claim Centrelink benefits again.

You should remember that the average weekly earnings figure that Centrelink use increased 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 accurate 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.

What types of income maintenance payments are recoverable?

Virtually all types of income maintenance payments are recoverable including unemployment benefits (Newstart), Disability Support Pension, Sickness Benefits and Parenting Allowance.  The only benefit that is definitely not recoverable is the lump sum Family Tax Benefit payment.  If your spouse or de facto (including same sex) partner also receives Centrelink benefits, their payments may also be taken into account.

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 amount of weeks recoverable from the accident has not yet expired.  When Centrelink become 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. 

It is essential that you take into account Centrelink recovery before you accept any offers of settlement from the insurer.

Author: Mal Byrne

If you have any doubts about Centrelink recovery or your entitlement to Centrelink benefits after you receive your compensation money, contact Mal on (08) 8250 6668.