'Other Income' Amount is Calculated Before Tax not After - GK v Unifund LAT 17-001274

January 29, 2018, Kitchener, Ontario

Posted by: Robert Deutschmann, Personal Injury Lawyer

GK v Unifund LAT 17-001274

Decision Date: December 7, 2017
Heard Before:  Adjudicator Ian Maedel

IRBs: Are “other income replacement’ amounts calculated before or after tax; the applicant argues after; the argument is denied and the Schedule is clear

GK was injured in a car accident on November 5, 2014. He was a pedestrian struck by a motor vehicle. At the time of the accident he was employed at Brewer’s Retail Inc. and returned to work immediately following the accident. He worked until he was unable to complete the essential tasks of his employment and has not returned to work since March 2015.

He applied for benefits under the SABs.  The parties agreed that GK is entitled to IRB, however they disagree about the amount. GK claims he is entitled to $400, Unifund submits he is entitled to $172 per month. The parties further disagree on the definition of “other income replacement assistance” pursuant to sections 4(1) and 7(1) of the Schedule and whether that applies to the taxable gross or net amount paid for STD and LTD in the calculation of the IRB.

Issues:

1. Is GK entitled to receive IRBs in the amount of $400.00 week for the period of March 29, 2015 to March 31, 2015?
2. Is GK entitled to receive IRBs in the amount of $120.43 per week from April 1, 2015 to September 29, 2015?
3. Is GK entitled to receive IRBs in the amount of $196.87 per week for the period September 30, 2015 to December 31, 2015?
4. Is GK entitled to receive IRBs in the amount of $210.82 per week for the period January 1, 2016 to December 31, 2016?
5. Is GK entitled to receive IRBs in the amount of $207.20 per week for the period January 1, 2017 to date and ongoing?
6. Does the definition of “other income replacement assistance” pursuant to sections 4(1) and 7(1) of the Schedule applies to the gross or net amount paid for short term disability and LTD benefits when calculating IRB.
7. Is GK entitled to interest on any overdue payment of benefits?

Result:

1. GK is entitled to $172.00 in IRBs for the period of March 29, 2015 to March 31, 2015.The definition of “other income replacement assistance” at section 4(1) and section 7(1) of the Schedule refer only to the gross amount of short term and LTD benefits.
2. Any IRBs with regard to the issues in dispute shall be calculated by deducting the gross amount of short term and LTD benefits paid before taxes. Any outstanding income replacement benefit not paid utilizing this formula shall be paid forthwith.
3. GK is not entitled to interest on any of the issues in dispute.

Since April 1, 2015 GK has received both short term disability STD and LTD benefits from his employer.  The parties agree that GK is entitled to IRBs. There is also no question that the STD and LTD are collateral benefits pursuant to section 267.8(1) of the Insurance Act and can be deducted from GK’s weekly IRB as “other income replacement assistance” pursuant to sections 7(1) and 4(1) of the Schedule.

The Arbitrator reviewed the evidence and the facts, noting that GK bears the onus to prove their case on a balance of probabilities.

The Schedule applicable in November 2014, examined the issue of IRBs at sections 4-11. According to section 7(2), IRB is based on 70 per cent of the insured person’s gross weekly employment income. The parties do not dispute GK’s weekly gross pre-accident earnings.  Central to the ultimate determination of the issues in dispute is the interpretation of section 4(1)(a) of the Schedule. The Schedule from November 2014 states that:

 “other income replacement assistance” means …

(a) the amount of any gross weekly payment for loss of income that is received by or available to the person as a result of the accident under the laws of any jurisdiction or under any income continuation benefit plan, other than…

GK submits that the phrase “received by” is key for interpreting the quantum of IRB benefits with regard to the tax applied to STD and LTD benefits.  GK submits that because the gross amount of disability benefits were taxed upon release by the insurer and remitted directly to the Canada Revenue Agency, the monies were never “received by” GK. GK only “received” the net amount of the benefit after tax.

GK submits, the Schedule and the principles therein constitute remedial legislation. However, this section, and the whole of section 4 of the Schedule is replete with references to “gross employment income”, “gross weekly employment income” and “gross weekly payment”. The language is clear.

The Arbitrator noted that Sections 4(5) and 4(6) of the Schedule speak directly to taxation and the duty of an individual to report their income and adjustments that may be made for the amount of taxation imposed on an individual’s gross annual employment income.  Nowhere in section 4 of the Schedule does it describe or define any terms like “net employment income” or “net weekly employment income”. One must infer that the absence of these terms is purposeful. Simply, if the legislature had intended these terms to be included, they would be defined therein.  There is nothing in the Schedule indicating that gross weekly payments in section 4(1) are to be reduced by taxed net amounts. Had the legislature intended for taxes to be included in the calculations of deductions for IRBs, the Schedule would explicitly express it therein. It does not.

The calculation of IRBs is based on the gross employment income and not the net employment income of an individual.  This gross employment income includes benefits like STD and LTD before tax. The Arbitrator determined that the collateral benefits rules in the SABS are intended to achieve the same legislative purposes as the deduction from damages rules in the Insurance Act – to prevent double recovery, give effect to rules about priority of payer, ensure appropriate relief for accident victims, and minimize litigation.

Upon review of the totality of evidence presented, GK has not met their burden on a balance of probabilities standard and the issues in dispute are hereby dismissed.

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It is important that you review your accident benefit file with one of our experienced personal injury / car accident lawyers to ensure that you obtain access to all your benefits which include, but are limited to, things like physiotherapy, income replacement benefits, vocational retraining and home modifications.