Q & A – Centrelink treatment of insurance payments for damages or the loss of a building

Find out what your peers are asking – based on real-life questions submitted to TechConnect.

Janet Manzanero-Caruana, Senior Technical Services Manager

Q: My clients are receiving age pension. They had a factory unit valued at $800,000 that burned down and will be rebuilt from an insurance claim.  The construction could take 12 months process. The insurer has approved the claim and will make payments as the rebuild progresses.

How will Centrelink assess the factory and insurance proceeds?

A: Compensation payments paid in instalments by the insurance company to replace for the clients’ burnt factory are generally exempt from the income and assets test for 12 months from receipt. This 12 month period may be extended if certain conditions are met.


Compensation and insurance payments exemption

Insurance proceeds or compensation payments received by an income support recipient because of the loss or damage to a building (including the family home), plant or personal effects are exempt from the Centrelink assets test for up to 12 months from receipt. 

These payments may include payments to compensate for the loss or damage to the building, to replace the lost building, or to rebuild, repair or renovate the building.

The 12 month exemption period for these payments may be extended if all of the following are met:

  • the clients’ building or plant was lost or damaged, and
  • the loss or damage was not purposely caused by the clients, and
  • the clients made reasonable attempts to
    • repair the plant or building, or
    • sell the plant or building to allow them to buy or build another plant or building, or
    • to buy or build another plant or building, and
  • the clients made those attempts within a reasonable period after the loss or damage, and
  • the clients experienced delays beyond their control in buying, building, repairing, or renovating the building or plant.

These requirements are like those applied to extend the exemption period for home sale proceeds from 12 months to a maximum of 24 months where the client intends to use the amount to purchase, build or renovate another property for their principal home.

Extending the exemption period

The exemption period may extend depending on when the client anticipates the construction or repair of the building to be completed. The stipulations of the contract to purchase, build, construct, rebuild, repair, or renovate the building (including the family home) or plant will be considered.

The exemption period can extend past 24 months if the work on client’s building or plant is unfinished. However, if the damaged building is the family home, the maximum exemption period is 24 months.

The extended exemption period for such insurance or compensation payments ends at the earlier of:

  • when the client has purchased the new principal home or building, or the rebuilding, repair or renovation of the building or plant is completed. An example is where the last compensation payment is received and the certificate of occupancy is issued; or
  • the approved extended period expires.

Income test exemption
For the income test compensation payments are not assessed as income and, if invested in a financial investment, its actual income is exempt and not deemed during the 12 month exemption period. 

The amount may be exempt from the income test deeming rules for over 12 months only if the client can establish that the amount was intended for repairs but not spent within 12 months because of reasons beyond their control.

However, if the payment is spent for a different purpose or a different the acquired asset is immediately assessable for the means test.


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.