Overview

A lot of people who settle a workers compensation or personal injury claim assume their TPD claim went with it. Often it hasn’t. In many cases, a TPD claim after compensation is still possible, because the two claims come from separate systems. But they can still cross over in important ways, particularly around medical evidence, settlement terms, Centrelink and tax.

Below, we walk through where the two claims cross over. We also cover the questions worth asking before you settle, lodge a claim or move any money.

Why a compensation payout and a TPD claim are separate

A compensation claim is usually made against an employer, a workers compensation insurer, a CTP insurer or another party responsible for an injury. A Total and Permanent Disability (TPD) claim is different. It is made under an insurance policy, often held through your superannuation fund, and it depends on whether you meet that policy’s definition of TPD.

Take a common example. Someone settles a workers compensation claim with their employer’s insurer, then later receives a TPD benefit from their super fund’s insurer. Each claim is generally assessed under its own rules, although the evidence, policy wording and settlement terms can still interact.

Where the two claims can overlap

How Centrelink treats a TPD payment after compensation

A lump sum TPD benefit paid from a superannuation fund is not generally treated as compensation for Centrelink compensation recovery purposes. It does not usually create its own preclusion period. However, it does not reduce or cancel a preclusion period already created by a compensation payment.

The part people often miss is what happens next. Once the money is withdrawn from super, what you do with it can affect the income and assets tests, and in turn payments such as the Disability Support Pension. Payments from disability or personal insurance held outside super can be treated differently, depending on what the payment is for and how the policy is structured.

Tax differences between compensation and TPD

Compensation and TPD payments can be taxed very differently. Some personal injury compensation amounts may be capital rather than ordinary income, but that depends on what the payment represents and how it is structured. Interest or investment earnings on the funds may be taxable either way.

A TPD benefit paid from super may have both tax-free and taxable components. Special rules can increase the tax-free component for a qualifying disability superannuation benefit. Two people with similar payouts can end up with quite different after-tax amounts, so it pays to have this worked out on your own figures.

Can I still make a TPD claim after compensation?

In many cases, yes. The main questions are whether the relevant cover was still in force, whether you meet the policy definition, and whether the evidence supports the claim. Some people lodge their TPD claim while the compensation claim is still running. Others lodge it after settlement.

Leaving it too long can cause problems. Medical evidence gets harder to pull together as time passes, and some policies and complaint processes have time limits. If your TPD claim was declined in the past, you may be able to ask for an internal review or take a complaint to the Australian Financial Complaints Authority (AFCA).

Planning for both payouts together

Two lump sums often land months apart, and what you do with the first can narrow your options for the second. For example, paying off debt or investing a compensation payout without allowing for a pending TPD benefit can affect your cashflow, your Centrelink position and the tax on earnings or later transactions.

Before moving either payout, it helps to know what is coming in, when it is coming, how long any preclusion period lasts, and what Centrelink or super consequences may follow. HFI works with compensation lawyers and clients to model this before key decisions are locked in. Our guide to post-TPD financial advice covers what to think about once a TPD claim is approved.