4.6 — Compensation awards
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Summary of Policy
This Directive pertains to the exemption of:
- specific compensation awards outlined in sections 28, 41, 42 and 43 of the ODSP general regulation; and
- compensation awards of any amount for pain and suffering and for expenses incurred or to be incurred due to injury or death; for loss of care, guidance and companionship under the Family Law Act; non-economic loss under the Workplace Safety And Insurance Act, 1997 or the Workers’ Compensation Act.
Sections 28(1)14, 14.1, 14.2, and 41(13) and 42 and 43(1)4, 9, (5)
Summary of Directive
The directive pertains to both the income and the asset exemptions for compensation awards.
The directive describes the factors to be considered when applying the income and asset exemptions to amounts received for compensation or damages.
The directive provides examples of the types of awards considered compensation or damages for pain and suffering.
The directive describes the options available to recipients regarding the application of the income exemption to payments from a structured settlement.
Intent of Policy
To guide decision-making when applying the income and asset exemptions to amounts received for compensation or damages listed in the Summary of Policy section of this directive.
Application of Policy
Benefit unit members are obligated to report any legal actions that may result in a monetary settlement or award. If ODSP staff become aware that a benefit unit member is involved in a legal dispute and may receive a compensation award, the following forms must be completed:
- an Expected Compensation or Settlement Referral form;
- an Agreement to Reimburse; and
- an Assignment, Authorization and Direction form.
The Agreement to Reimburse and the Assignment and Direction are required as a condition of eligibility. Completed forms must be forwarded to Legal Services Branch.
A Ministry claim under an Assignment and Direction and Agreement to Reimburse can only be recovered from amounts that are not exempt and that are considered income under ODSP.
The ODSP general regulation exempts payments from specific compensation awards, such as the Helpline Reconciliation Model Agreement, The Multi-Provincial/Territorial Assistance Program Agreement, the Grandview Agreement, the Ontario Hepatitis C Assistance Plan, the Walkerton Compensation Plan, and payments made by a local Disaster Relief Committee established pursuant to the Ontario Disaster Relief Assistance Program. These awards are exempt as both income and assets.
A list of income exemptions for specific government compensation awards can be found in sections 41, 42 and 43 of the ODSP general regulation. The list of asset exemptions can be found in section 28 of the general regulation.
The ODSP general regulation also establishes full income and asset exemptions for the following:
- awards for pain and suffering as a result of an injury to or the death of a member of the benefit unit;
- expenses actually or reasonably incurred or to be incurred as a result of injury to or death of a member of the benefit unit;
- loss of care, guidance and companionship due to an injury to or the death of a family member under the Family Law Act;
- non-economic loss under section 46 of the Workplace Safety and Insurance Act, 1997 or section 42 of the Workers’ Compensation Act.
Income and assets exempted under this policy are payments made as an award or in settlement of a claim by a recipient, and are therefore not voluntary payments. As a result, the gifts and voluntary payments limit does not apply.
Non-Exempt forms of Compensation
Portions of awards to compensate a person for lost income are not exempt and are considered income and/or assets. The following list of payments typically apply to forms of compensation and are treated as income and/or assets:
- Income Replacement Benefits
- Non-Earner Benefits
- Past or Future Loss of Income
- Punitive Damages Awards
- WSIB Awards for Past or Future Economic Loss
Interest earned on exempt compensation awards is considered income and an asset, subject to other applicable exemptions.
However, prejudgment interest awarded as compensation for the delay in receiving damages on pain and suffering awards is considered part of the actual award for pain and suffering. Therefore, the exemption can include the pain and suffering award as well as amounts awarded for prejudgment interest. Other kinds of prejudgment interest, such as prejudgment interest on awards for lost wages, are still considered as income and as an asset for ODSP purposes.
For these awards the recipient must provide an annual report that documents all income and expense transactions relating to that award.
Use of Exempt Award
If a recipient uses these exempt funds to purchase an asset, that asset is not automatically exempt simply because it was purchased with funds from the award.
If the funds are used to purchase: a principal residence; any other approved asset that is necessary for health and welfare; or an exempt asset such as a primary motor vehicle that asset remains exempt as an asset and will have no impact on the recipient’s income support.
However, if an ODSP recipient purchases a non-exempt asset such as a second home or a second vehicle that is not required for a member of the benefit unit to maintain employment outside the home, that asset is not exempt and will count toward the benefit unit’s asset limit.
Amounts awarded for compensation or damages are often used to purchase structured settlements which provide an injured person with an income stream. Structured settlements can only be purchased by the casualty insurer from a federally-registered Canadian life insurer. The life insurer guarantees to provide periodic payments for a specified period (in most cases, over the lifetime of the beneficiary).
Structured settlements are not considered assets.
Pro-Rating of Structured Settlement Payments
With respect to the treatment of structured settlement payments, the recipient has the option of applying the exemptions either up front or pro-rating the exemption over the number of months until the beneficiary (recipient, spouse or dependent) turns 65 years of age.
Please note that the amount payable to a recipient from a structured settlement that will be exempted is equal to the exempt amount of capital invested into it. For example, if $150,000 was the exempt capital amount invested into the structured settlement, then the recipient is only entitled to receive $150,000 in payments from the structure before the income exemption is exhausted.
The prorated exemption calculation is based on the assumption that the recipient will no longer be eligible for income support when he/she reaches 65 years of age due to Old Age Security (OAS) income.
If, at the time the compensation award is received, it is determined that the recipient will not be eligible to receive OAS when he/she reaches 65 years of age, ODSP staff should attempt to determine when the recipient will be eligible for OAS and pro-rate the exemption over the number of months from the month the award is received to the month the recipient will be eligible to receive OAS.
The recipient receives $150,000 which is fully exempt as income and an asset.
- The $150,000 award is placed in a structured settlement that provides a monthly payment of $900 to the recipient. At that rate, the exemption will be exhausted in 166.67 months.
- Current date is October 15, 2011; the date of the first payment is December 1, 2011.
- 166 months from December 1, 2011 is October 1, 2025.
- The recipient's date of birth is June 1, 1965; the recipient will be 65 years of age on June 1, 2030.
- The number of months from December 2011 to June 2030 is 224 (rounded up).
|Exemption Up Front||Exemption Pro-Rated|
From December 2011 to October 2025, 100% of the $900 monthly payment is exempt.
[$900 x 166 months = $149,400]
For the month of October 2025, $600 of the $900 monthly payment is exempt; the remaining $300 is charged as income.
[$149,400 + $600 = $150,000]
Commencing November 2025, 100% of the $900 monthly payment is charged as income.
Amount of exemption is pro-rated over the number of months from December 2011 to June 2030.
[$150,000 / 224 months = $669.64]
From December 2011 to June 2030, the monthly income deduction is $230.36.
[$900 - $669.64 = $230.36]
Cases where structured settlements are being considered or where payments are received from a structured settlement must be referred to the Legal Services Branch of the Ministry of Community and Social Services.
Hyperlinks of Related Directives:
4.1 Definition and Treatment of Assets
4.4 Transfer of Assets for Inadequate Consideration
4.7 Funds Held in Trust
5.1 Definition and Treatment of Income
11.1 Recovery of Overpayments