Self-Employed Individuals – Last 52 Weeks or Last Completed Taxation Year?

For self-employed individuals seeking to claim an income replacement benefit (“IRB”), the calculation of their pre-accident gross weekly income is not always straightforward.  Two recent Licence Appeal Tribunal (“LAT”) decisions have added another wrinkle to the calculation of a self-employed claimant’s pre-accident gross income.

In the decisions K.D. v. Aviva Insurance (18-011646/AABS) and V.H. v. Aviva Insurance (18-009156/AABS), both adjudicators ruled that the calculation of a claimant’s pre-accident gross income earned during the 52 weeks before the accident is not consistent with the Statutory Accident Benefits Schedule for accidents occurring on or after September 1, 2010 (“SABS”).  In both decisions, the adjudicators dismissed the claimant’s accountant’s calculations of the claimant’s pre-accident income earned during the 52 weeks before the accident.

In both of the decisions, the respondents relied on Section 4(3) of the SABS, which states:

“A self-employed person’s weekly income or loss from self-employment at the time of the accident is the amount that would be 1/52 of the amount of the person’s income or loss from the business for the last completed taxation year as determined in accordance with Part I of the Income Tax Act (Canada).”

In the two decisions, both adjudicators agreed with the respondent’s interpretation of Section 4(3) and were not persuaded by any of the arguments brought forward by the claimant’s counsel.

Historically, it has been a widely accepted practice amongst forensic accountants who quantify IRBs to examine a claimant’s last completed taxation year AND their pre-accident earnings during the 52 weeks before an accident.  Examining the claimant’s pre-accident income during the 52 weeks before the accident provides insurers with a more relevant examination period.  Also, if a newly self-employed individual had only been operating their business for a few months they would have not yet had a completed taxation year, so would they then not have any calculation period available to them?  This is indeed where a “blind spot” exists in the SABS.

The historical practice of completing a 52 week calculation for a claimant’s pre-accident income was borne from a previous version of the SABS, which was not as ambiguous as the current version of the SABS.  Outlined in the SABS for accidents on or after November 1, 1996, Section 8(2) provided direction for the calculation of a self-employed individual’s pre-accident income.  Specifically, Section 8(2) states:

“An insured person who is eligible for an income replacement benefit under paragraph 1 of section 4 and who was self-employed at any time during the four weeks before the accident shall designate one of the following time periods:

1. The 52 weeks before the accident.
2. The last fiscal year completed before the accident for the business in which the person was self-employed, if the business completed a fiscal year before the accident.”

 This iteration of the SABS (i.e. on or after November 1, 1996) is also consistent with the current Application for Accident Benefits (OCF-1), which requests a claimant to select their highest average weekly income from the following options:

• Last 4 weeks (not applicable for self-employed persons)
• Last 52 weeks
• Last fiscal year (self-employed only)

The OCF-1 itself is not legislation; however, it immediately gives the claimant an indication of the time periods in which their pre-accident gross annual income will be calculated.  The Employer’s Confirmation Form (OCF-2) requests the same time periods for a self-employed individual.  However, the forms are not consistent with Section 4(3) of the SABS for accidents on or after September 1, 2010.

To-date, many insurers continue to accept the calculation of a self-employed individual’s pre-accident income during the 52 weeks before the accident. Insurers recognize the importance of quantifying a claimant’s IRBs based on the most recent business results of their insureds, which can accurately reflect any potential IRBs available to them. Will the two recent LAT decisions persuade insurers? Only time will tell, stay tuned.

Read the decisions in full detail here:

K.D. v. Aviva Insurance (18-011646/AABS) decision

V.H. v. Aviva Insurance (18-009156/AABS) decision