How can compensation payments impact Centrelink benefits?

By Stuary Sheary, Senior Technical Manager

Centrelink benefits can be impacted by compensation payments. How these payments are impacted depends on the type of compensation and how it is received. The assessment of compensation on Centrelink entitlements can be complex and will need to be examined on a case-by-case basis by Centrelink.

Centrelink impacted payments

Most Centrelink benefits are impacted by compensation payments. Impacted entitlements include JobSeeker Payment as well as pensions like Age Pension, Disability Support Pension and Carer Payment. One notable payment that is not impacted by compensation is the Carer's Allowance.

How is compensation and compensation-like payments assessed?

In summary a compensation payment may be:

  • subject to a preclusion period 
  • assessed as ordinary income
  • dollar-for-dollar reduction
  • classified as an exempt payment.

Following, we will identify common compensation payments and how they are generally assessed by Centrelink.

Lump sum personal injury award or settlement for damages

Where a court awards a lump sum for damages or your client settles on damages, the lump sum will ordinarily give rise to a 'preclusion period'. As the name suggests clients are 'precluded' from receiving a benefit during this period, be it a period in the future or in the past. If your client has received a Centrelink benefit for a period for which they are precluded, the benefit received may need to be repaid. If your client is serving a preclusion period, they may still be able to access the health care card or CHSC.

The formula for calculating the length of this preclusion period will vary depending on whether the amount of damages for economic loss can be identified. For example, a compensation claim contested through a court, tribunal or arbitrator will ordinarily identify the specific amount awarded for economic loss. For Centrelink purposes, economic loss includes lost wages, lost capacity to earn and lost superannuation contributions. Alternatively, an agreed lump sum through settlement will not typically identify how much relates to economic loss. 

The partner of a lump sum compensation payment recipient is not subject to a preclusion period, see Social Security Guide

Lump sum compensation for personal injury relating to non-economic loss may be assessed as ordinary income in the fortnight received but ignored for pensions see Social Security Guide

Compensation economic loss amount specified

Where damages are awarded via a court judgement, tribunal, or arbitrator, the amount awarded for economic loss may be specified. Where the amount awarded for economic loss is known, the formula for calculating the preclusion period is:

Amount awarded for economic loss

the single income test cut off amount

The single fortnightly income test cut-out amount is $2,115 and the weekly amount is $1,057.50 at 20 September 2021 outlined on the Department of Social Services website. The income cut-out amount that applies is the figure that applied at the time the lump sum is received.


If a court judgement specified $200,000 be paid for pain and suffering and $300,000 for loss of earnings, the preclusion period is 283 weeks or a little under 5 and a half years. The period for complete weeks and is rounded down to the nearest whole week. This is calculated as follows: 



  =     283 weeks (rounded down to the nearest whole week)

This means the client will not be eligible to claim benefits such as JobSeeker, Disability Support Pension or Age Pension until after this preclusion period is over.

50% rule - compensation via settlement and economic loss not specified

If the compensation is by way of settlement, the amount relating to economic loss is unlikely to be specified and the 50% rule would apply. Under the 50% rule it is assumed that half the compensation payment relates to economic loss.

Settlement amount

the single income test cut off amount

  x     50%

For example, if a client accepts a settlement payment of $500,000 for injuries, $250,000 will be treated as compensation for economic loss. In this instance the preclusion period will be 236 weeks or a little over 4 and a half years.



  =     236 weeks (rounded down)

Centrelink's compensation estimator can assist to calculate the preclusion period for compensation settlement payments.

Workers compensation paid periodically (relating to economic loss)

A dollar-for-dollar reduction in the rate of Centrelink entitlements applies for workers compensation received in relation to loss of income. This assumes your client was not already receiving a Centrelink benefit at the time of the compensation event. Otherwise, it may be assessed as ordinary income.

Impact on partner of workers compensation recipient paid periodically

The partner of a workers compensation recipient may have their Centrelink entitlements reduced under the income test depending on whether the compensation recipient qualifies for a Centrelink entitlement and whether it has been reduced to nil because of the periodic compensation. For additional information, see Guide to Social Security Law

Impact on partner where compensation recipient receives or claims a Centrelink benefit

Compensation recipient's Centrelink entitlement is  Periodic compensation 
Not reduced to nil or is reduced to nil but there is no excess compensation Does not impact partner's Centrelink entitlement
Reduced to nil and there is 'excess compensation' (ie compensation exceeds the amount necessary to reduce entitlement to nil) Excess compensation is assessed as partner's own ordinary income

If the compensation recipient does not qualify for a Centrelink entitlement, there is no excess and compensation is treated as ordinary income.

Exempt lump sum

Some lump sums compensation payments are specifically exempted under section 8(11) of the Social Security Act from assessment. A more comprehensive list can be found in the Guide to Social Security Law -, however some of these payments include:

  • a criminal injury, such as a victims of crime payment
  • non-economic loss under the Fair Work Act 2009 (this excludes compensation for being unfairly dismissed)
  • loss as a result of negligent provision of professional services
  • a personal injury, disease, or condition
  • death benefits
  • insurance in respect of a specified medical trauma or event, and
  • death and permanent impairment under the Safety, Rehabilitation and Compensation Act 1988 or the 
    Military Rehabilitation and Compensation Act 2004 
Lifetime Invalidity pensions paid from government super schemes

Invalidity lifetime pensions paid from a government defined benefit scheme such as Commonwealth Super Scheme(CSS), Public Sector Superannuation Scheme (PSS) or MilitarySuper are assessed as a defined benefit income stream. These income streams may have a deductible amount reflecting the tax-free proportion of your client's pension which may reduce the amount of income assessed. The deductible amount is generally limited to a maximum of 10%. This 10% cap does not apply to Department of Veteran Affairs (DVA) pensions or military super schemes. These lifetime pensions have no asset value for Centrelink purposes.

Assessment of insurance proceeds

Income protection paid personally

Benefits from an income protection policy are generally assessed as ordinary income. This is the case where your client has paid the policy premiums and the policy does not include a social security offset clause or if one does exist, is not invoked.

Income protection held in super

Similarly, a temporary incapacity superannuation income stream is also assessed as ordinary income. More information can be found in Social Security Guide

Total and Permanent Disability lump sum (held personally)

A lump sum Total and Permanent Disability (TPD) payment on a policy held directly (not via super) is assessed as ordinary income and apportioned over 52 weeks. This assumes that your client has paid the policy premiums and the policy does not include a social security offset clause or if one does exist, it is not invoked. 

For example, a relatively small TPD payout of $54,990 or more would translate into fortnightly income of at least $2,115 and would cut-off a single person from a Centrelink pension such as a Disability Support Pension for the maximum 52 weeks under the income test.

Total and Permanent Disability proceeds (held within super)

Lump sum withdrawals from super relating to TPD are not assessed. How these withdrawals are invested may have Centrelink implications.

Where TPD proceeds fund a super disability pension, the income stream will be subject to ordinary deeming rules and asset tested. TPD proceeds left in super (accumulation phase) are not means tested until your client has attained Age Pension age.


The assessment of compensation on Centrelink entitlements can be complex. To wrap up, the following table may help to provide a summary of the impacts of some common compensation payments on Centrelink benefits.

Compensation or compensation-like payment  Centrelink entitlement impact
Lump sum damages such as an award/settlements or by court judgement Preclusion period
Workers' compensation paid periodically Dollar-for-dollar reduction
An 'exempt lump' sum, eg loss as a result of negligent provision of professional services Exempt
Income protection proceeds (premiums paid by client) Ordinary income
Lump sum TPD payment (policy held personally) Ordinary income apportioned over 52 weeks
Lump sum withdrawal from super funded with TPD proceeds Not assessed

More information

If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.

The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.