Post-Accident Income From Self-Employment - Is It Deductible?

November 12, 2018

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Thanks to a decision from the Licence Appeal Tribunal (“LAT”), we now have further clarification about the deduction of post-accident income from self-employment in the calculation of an income replacement benefit (“IRB”). The decision was in the matter of V.S. and Economical Mutual Insurance Company (“Economical”), dated May 23 (Tribunal File Number: 17-000751/AABS).

Fact of the case

The applicant was self-employed as the sole shareholder of a trucking company. He drove his truck and used a relief driver on occasion when busy. The motor vehicle accident occurred on November 27, 2014. Following the accident, the applicant was unable to drive his truck. Until May 19, 2015, his business did not operate at all. On that date, the applicant hired a replacement driver to drive his truck. His wife and children took over the administration of the business and his involvement was limited to providing authorization when needed.

Calculating the IRB

At issue was the applicant’s IRB. The adjudicator was clear after a review of the accounting report obtained by the applicant that the report “is unreliable” and the approach used was “troublesome.” The adjudicator continued: “It would be an egregious breach of natural justice and procedural fairness, if I were to rely on a report cherry picked for its conclusion.” Instead, the adjudicator relied on the weekly base rate of the IRB from the accounting report obtained by Economical, which was “based on supporting documents.”

The adjudicator also considered the treatment of the post-accident income generated by the replacement driver and its impact on the IRB. The applicant argued that he had not “earned” the income generated while he was not actively engaged in the business and that the business had become a “passive investment.” For these reasons, the applicant submitted that no deduction should be made in the calculation of his IRB for any post-accident income from self-employment.

The adjudicator disagreed, stating that although “the Applicant is no longer driving his truck, he still remains the sole owner of the company and he is still the governing mind, retaining signing authority … all decisions still required his final approval.”

For these reasons, the adjudicator found that “the Applicant’s company profits should be counted as post-accident income and deducted from his IRB,” pursuant to paragraph 7(3)(b) of the SABS. This finding is consistent with two other decisions:

  • an Appeal Order of the Financial Services Commission of Ontario in the matter of Perth Insurance Company and Salim Surani, dated August 18, 2017 (P16-00022), although this matter is the subject of another review scheduled for November 15, 2018
  • a decision of the LAT in the matter of A.S. and Economical, dated January 10, 2018 (Tribunal File Number: 16-003197/AABS)

Are the disability benefits deductible?

Also at issue was the deductibility of the disability benefits the applicant received from The Co-operators Life Insurance Company (“Co-op Life”) as a result of the accident, which totalled $1,500 per month. The central question: whether or not the monthly benefit the applicant received from Co-op Life met the definition of a payment for loss of income under an income continuation benefit plan contained in paragraph 3(7)(d) of the SABS. To meet the definition, the insurance needs to be offered by the insurer “(A) to persons who are employed while the contract for the insurance is in effect, and (B) only on the basis that the maximum benefit payable is limited to an amount calculated with reference to the insured person’s income from employment.”

The adjudicator found that the disability benefit the Applicant received from Co-op Life met the two criteria and, therefore, was received by the Applicant by virtue of an income continuation benefit plan and was deductible pursuant to paragraph 7(1)(“A”) of the SABS. The evidence indicated that the monthly benefit amount was calculated as 75% of insurable monthly earnings up to a maximum of $1,500 per month. It was only payable if the Applicant was unable to work — in the adjudicator’s words, “the payments are meant to replace his income.” The benefit was therefore from an income continuation benefit plan.

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