Self-Employment Income Deducted Post-Accident – Yes or No?

In the recent Divisional Court decision released on December 7, 2018, Surani and Perth (File No.: 541/17), an application for judicial review was dismissed.  The application was regarding an order of the Director’s Delegate dated August 18, 2017 that determined Ms. Surani’s post-accident business income from her pharmacy should be deducted from her IRBs in accordance with Section 7(3)(b) of the SABS.  Specifically, Arbitrator Swinton concluded that the Director’s Delegate’s interpretation of the SABS was reasonable and that the insurer is entitled to deduct the business income earned by Ms. Surani’s pharmacy from her IRBs payable.

Arbitration & Appeal

Ms. Surani (the “Applicant”) owns and operates her own Pharmacy business.  After the accident, she did not work as a Pharmacist, however she was involved in varying degrees in managing her business.  Additional labour was hired subsequent to the accident to replace her Pharmacist duties.

The Applicant’s position was that she had not “earned” income as defined by the SABS.  An accounting expert report prepared on behalf of the Applicant took the approach that as Ms. Surani had not returned to work, she had not “earned” any post-accident income.  They relied on the Black’s Law Dictionary definition of earned income which states, “Money derived from one’s own labor or active participation; earnings from services”.

An accounting expert report prepared on behalf of the insurer took the approach that Section 7 of the SABS allows business losses after an accident to be added to an IRB, while business profits after an accident are to be deducted. The business income “earned” by the Pharmacy was the post-accident income earned by the Applicant.  This approach maintains consistency and the treatment of passive and active income pre-accident and post-accident.

Arbitrator Stone relied on the definition of “earned income” from the Income Tax Act (Canada).  Section 146(1)(a) of the ITA “includes the taxpayer’s income from a business carried on by the taxpayer actively engaged in the business”.  Arbitrator Stone concluded that the Applicant’s tasks were insufficient for her to be considered actively engaged in the business, therefore her post-accident income should not be deducted.

The Insurer appealed this decision with the position that “earned Income” in Section 146 of the ITA is not relevant to the SABS.  The definition of “earned income” is not found in Section 7(3)(b) of the SABS and a self-employed person’s income is the profit from the business, both before and after the accident.

In the appeal, Arbitrator Evans found that the legislation of the SABS could not have intended that an insured person could continue to profit from a business, yet not have those profits deducted from their IRBs post-accident.  The Applicant’s Pharmacy continued to earn income due to the replacement worker and as a result, it does not make sense that the income earned can only be deducted if the Applicant herself actively participates in the company.

Arbitrator Evans concluded that the insurer is entitled to deduct business income earned by Ms. Surani’s Pharmacy from her IRBs payable.  The Applicant disagreed with the appeal decision and sought a judicial review, which as indicated above was dismissed.

Read the decision in full detail here:

Surani v. Perth Insurance Company, 2018 ONSC 7254 (CanLII)